Will the coronavirus derail the bull market? Here’s what history suggests

Markets sold off in the wake of the coronavirus outbreak, but have since rebounded. Could the scare really end the bull market? Dominic Frisby looks to similar past cases for clues.

Markets wobbled, but have since recovered

As I begin today’s Money Morning, British Airways has just announced that it is suspending all flights to and from mainland China. As they arrive in Queensland, Australia has quarantined the Chinese women’s national football team. Coronavirus cases have now been confirmed in Tibet and the UAE.

So these nations can be added to a rapidly-increasing list which includes China, Thailand, Taiwan, Japan, Singapore, South Korea, Vietnam, the US, France, Australia, Malaysia, Nepal, Germany, Sri Lanka, Cambodia, and Canada.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

It’s hard to know whether there is too much panic or complacency. Markets sold off heavily from Friday to Monday, but since Tuesday have rebounded with conviction. So I thought it would be instructive today to compare the coronavirus to its most obvious predecessor, SARS.

How SARS affected the S&P 500

SARS. Remember that? Severe acute respiratory syndrome. It also originated in China, back in November 2002. Between then and July 2003, some 8,098 people were affected in as many as 28 countries, and 774 of them lost their lives – a fatality rate of 9.6%. No cases have been reported since 2004.

Advertisement - Article continues below

SARS originated with bats. It seems the coronavirus also originated with animals before spreading to humans. Indeed, SARS itself was a coronavirus. The scientific consensus seems to be that today’s coronavirus is more contagious, but less deadly than SARS. Within just a few days, the coronavirus seems to have spread almost as widely as SARS (roughly 5,000 cases in more than 20 countries), though with fewer fatalities – 106 deaths so far.

In the broader context, the US stockmarket – as represented by the S&P 500 – was in a multi-year bear market in the lead up to the SARS outbreak. This bear market followed the excesses of the dotcom bubble. Having peaked in 2000 at 1,550, it was making its way down to its eventual low of around 770.

However, the SARS outbreak, which began on November 27, 2002, actually coincided with a high in the S&P. At the time, the index appeared to have made a double bottom around 780, or just below, and was now rebounding. As it turned out, the S&P ended up making a triple bottom around this number – a level that would not be seen again until the Global Financial Crisis, six years later.

So the S&P sold off quite heavily, going from 940 to below 800. However, it is worth stressing that even although the outbreak occurred on 27 November, SARS did not really make the news until February – two months later.

Canada's Global Public Health Intelligence Network picked up on the news and sent it to the World Health Organisation (WHO), but there wasn’t even a report in English until 21 January. The story didn’t reach the public until February 2003, when an American businessman traveling from China – Johnny Chen – was taken ill on a flight to Singapore.

The plane landed in Hanoi, Vietnam, and he was rushed to hospital. The medical staff quickly fell ill with the same symptoms and the threat was reported to the WHO. In early March the WHO issued a global alert. The same week that global alert came, the S&P 500 made its final low.

By the time the WHO declared that SARS was contained in July, 2003, the S&P 500 was already well on its way into a new bull market. In other words, the SARS outbreak had very little effect on markets. The S&P was at peak pessimism anyway. The story would have been known before the WHO’s global alert, and some of the S&P’s sell-off in the weeks before could be attributed to that. But, in bigger picture terms, the effects were minimal.

Advertisement - Article continues below

The coronavirus is unlikely to derail the bull market

Fast forward to today, and, of course, the market had a big wobble on Friday. But that same wobble was long overdue. The S&P had just been on one of its longest runs in history. It needed a reason to sell off.

We don’t yet know how bad this coronavirus is going to be, of course. It seems that decisive action is being taken to stem the threat. If transport systems continue to be shut down that is going to hurt Chinese GDP. But, ultimately, my gut (and I stress I speak with zero authority) suggests it will get a bit worse before it gets better, but eventually the thing will be brought under control.

The big difference between then and now is, of course, that back then the S&P 500 was at the end of a bear market. Today we are within a few points of all-time highs in a bull market that has gone on for what seems like forever.

That bull market will go on for as long as it will go on. But, unless this coronavirus morphs into something much bigger, I can’t see it being the thing that derails it. I may well eat my words, of course, but I don’t see it having a big effect on Western markets, beyond causing some choppy action in the days – and maybe weeks – ahead.

Daylight Robbery – How Tax Shaped The Past And Will Change The Future is available at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere. If you want a signed copy, you can order one here.




Money Minute Wednesday 4 December: Britain's economic sentiment and American job figures

Today's Money Minute looks ahead to the UK's latest all-sector PMI survey, and America's private payrolls report.
4 Dec 2019

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019

Good news on jobs scares US stockmarkets

June brought the best monthly US jobs growth of the year, but stockmarkets were not best pleased.
11 Jul 2019

Most Popular


Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Small business

Furlough: what does it mean and how does it affect me?

Many companies have “furloughed” employees after they have shut down because of the coronavirus. But what does furlough mean and how does the scheme w…
30 Mar 2020
Investment trusts

These five trounced investment trusts will bounce back

The indiscriminate carnage in the markets has left these five promising investment trusts in the bargain basement.
31 Mar 2020