Some market perspectives on this Coronavirus. It was listed as one of the risk factors I outlined in Lurking Risks and it appears to now be indeed market impacting as the virus has now been reported in 16 countries and futures indication for tonight are showing risk off for the moment.
Firstly let me state again that I hope this virus gets contained in short order. If it does then history suggests that any impact on markets would be temporary and soon forgotten as previous health scares were.
Nobody wants a virus to spread and cause extensive loss of life. Even if one is bearish equities and positioned as such, no reasonable person would take pleasure in seeing such an unforeseen trigger being a primary driver of a market sell-off. The bear case stands on its own, structural, technical, valuations etc. and remains a separate discussion.
But markets are extremely stretched and richly valued and one can never know what trigger creates a shift in sentiment.
The coronavirus is new and information about it is evolving daily, hourly even. Currently it appears to have a fatality rate of around 3%. While that sounds minor on the surface it really isn’t as history shows.
Humanity has lived with the common flu for as long as we can remember and it’s causing thousands of fatalities each year. It’s not pleasant, but is considered contained and, I hate to say, an accepted risk factor in life.
But the flu is no joking matter and has known to cause absolute havoc on humanity. Just a little over a hundred years ago the Spanish flu was an absolute disaster for the people at the time. It lasted for nearly 2 years and killed millions of people.
According to Wikipedia: “Probably 50 million, and possibly as high as 100 million (three to five percent of Earth’s population at the time) died, making it one of the deadliest epidemics in human history.”
Three to five percent of the earth’s population. That’s a significant number and translated to today’s global population a virus with similar impact would be absolutely devastating. With over 7.5 billion people on the planet now we’re talking 200-500 million people in a similar scenario.
That’s not fear mongering, it’s just math, so obviously it’s extremely crucial that this virus is contained and the fear of such an infectious virus explains why the Chinese government is so aggressive in restricting travel and building make shift hospitals.
This coronavirus at this stage has not produced anywhere near the fatalities that the common flu produces each year and hence on the surface is a non issue.
But this virus apparently bears a dangerous component: It transmits without a person showing symptoms:
China says the deadly Wuhan coronavirus can spread before symptoms show, calling into question the US strategy to contain it as a new case is confirmed in California https://t.co/CmSLCmTadZ
— CNN (@CNN) January 26, 2020
If that’s the case then I have to presume the next week or two will be very critical to see if it’s truly contained. Problem is anyone showing symptoms now will have been in contact with an unknown number of people who may now carry it, but are not showing symptoms. Yet. And these people may be spreading the virus as we speak without knowing.
That means that in the here and now nobody knows how many people are currently infected, how many people they have come in contact with and how many people will show symptoms in the next week or two.
A virus that is not contained, has no current immunization available, spreads without symptoms showing, and has moved global (16 countries at the moment) is your ultimate CDC nightmare.
Aside from the potential loss of life the global economic impact may be severe if it spreads.
Hence markets are not likely to treat this as lightly as they did initially did last week. Every day we will now get updates of any further signs of spreading. If the spreading of the virus shows to grow exponentially outside the initially affected Chinese cities the news may be met with an accelerating market reaction to the downside.
Likewise any news flash that shows the spread of the virus to be slowing is likely to be met with an aggressive relief rally.
Hate to be so binary here, but this is what history shows.
The world has been very fortunate in recent decades that all disease fear related sell-off were very temporary. Let’s all hope this will be the case here as well, but for the here and now, we’re dealing with a new global uncertainty factor and headlines need to be not only closely monitored for veracity as news flashes may also be hyped by a media that thrives on ratings, but at the same time the science and data will tell its own tale. So investors and traders need to pay close attention. The next few days may well be key on how this unfolds.
Coronavirus has quickly evolved from a lurking risk to a clear and present danger for a market that has just experienced a liquidity driven buying frenzy and is now faced with sizable corrective risk with coronavirus the potential and unwelcome trigger.
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Sven, your math in the event of a coronavirus pandemic may be a bit inflated. It’s true that if all 7.5 billion people on earth were infected and there was a 3% fatality rate, around 225 million would die.
However, not everyone gets infected, even in large scale outbreaks. According the US Centers for Disease Control (CDC), https://www.cdc.gov/flu/about/burden/index.html, even in the most widespread year in the past decade (2017-2018), about 13% of the population had symptomatic flu.
Using that as a model for a coronavirus worldwide pandemic: 7.5 billion x 13% infected x 3% mortality = 29.25 million deaths worldwide. That’s still a huge amount of death and tragedy, but it’s an order of magnitude less than the simple math in the article.
The 1918 (H1N1 virus) pandemic had about 1/3 of the population infected according to the CDC (H1N1 infected 500 million people out of 1,500 million total humans on Earth). Other sources estimate that 25 million died in the first 25 weeks, and at least 50 million total died, perhaps as high as 100 million. I have also read that what made it spread faster than normal was the soldiers returning home from WW1 (via boats). The first commerial airline flight was in 1914, so it was harder for any virus to spread as we did not have 102,465 worldwide flights DAILY, as is the case today (over 4 billion passengers in the year 2017).
At this point it seems too soon to know how many will get affected by the 2019-nCoV coronavirus outbreak, and thus the true human and economic toll. It is a pandemic in China, yet WHO has not held off calling it a global pandemic. I would guess that China is hidding the total numbers or simply do not know, as the death rate seems to vary between 2-4.5% depending on the news source. The spread RATE (not percentage) seems about twice as fast as the normal flu, at least in the first few weeks. Planes are a real issue as I’ve read 2.5 people get infected from a single virus carrier on a flight, much higher than more open environments. That said, we are all lucky the death rate is 2-4%, and not the 10-20% that was CDC estimated for the 1918 H1N1 virus.
I think the real concern is that back in 1918, we did not have billions of people flying across the globe. New York City alone has around 3,000 daily flights, with 44,000 flights each DAY total across all of America (5,000 airplanes in the American sky at peak operational times). (see https://www.faa.gov/air_traffic/by_the_numbers/) Seems to me that the real issue is the total number of humans who might get sick, as that alone could cause people to panic and slow capitalism for a few months at the very least. Negativie sentiment could easily make this pandemic worse than reality and I think the central banks have set us all up for possible stock market “panic-demic”. The larger the central banks have inflated the global economic balloon, the easier it will pop.
Yet coronavirus might be less scary than Sanders taking the lead in N.H. and Iowa, as typically whoever wins the first two primaries usually wins the nomination. The markets seem to be under-estimating the political winds shifting, particularly “Hurricane Sanders” which will first hit shore on February 3rd in Iowa. And “Hurricane Sanders” could possible get much worse after November 3rd, 2020. And if the Senate turns blue in the process too, businesses might need to remain in their bunkers until November 3rd, 2024. Coronavirus is a 6 to 18 month event, the political shift could last 4-8 years. I’m not sure how much more uncertainty my own small business can take before I just sell it all, and I am not alone as small business owners are hurt more via uncertainty than the mega corps. At this point I don’t care who wins, I just need policy to stop doing an 180 degree turn every 2-4 years. Wish we had 10 year political terms, as small businesses need more certaintly than a 2-4 year time horizon…
Another factor: the virus has only recently jumped to widespread human hosts. In this new environment it will very likely evolve more rapidly than a long established human hosted virus. This could be good or bad news or both (several evolving populations plausible). It might become more or less transmissible between humans; it might become more or less easy for it to infect humans; it might become milder or more severe; it might jump to other new species, evolve a bit more, then jump back to humans. Many possibilities.
Not only don’t we have anywhere near enough data yet to make reasonably accurate predictions how it will unfold, the virus could change in unpredictable ways that would invalidate earlier predictions.
What we’re seeing so far is a bit ominous, the next week should suggest how the initial phase may develop but this virus is probably going to be a problem for the next year or two, maybe longer.
As reported at 23:00 GMT here:
“7:00 am Jan 27
Hubei Province reported 371 new cases of coronavirus and 24 new deaths on Jan 26 local time; total infection cases in the province rose to 1,423, with 76 deaths and 44 recovered.”
More died than recovered in official statistics, not good. It could be taking maybe 2 weeks from showing symptoms to resolution – recovered or died – so it could be a while before we get a realistic fatality rate. Currently it seems to be similar to SARS.