What Does the Coronavirus Mean for Investors?

Market Reaction: January 30, 2020


The loss of human life is much more important than the impact on financial markets, but with stocks exposed, we have little choice but to provide some analysis as precautionary measures like travel bans can have temporary, negative economic consequences.

We do not know how long, widespread, or deadly the coronavirus will prove to be, but the impact on financial markets of past epidemics has been relatively short-lived. As figure 1 shows below, the S&P 500 has experienced 6%-13% declines during past virus emergencies, but returns were often positive six months later.

We should also point out that this emergency is not occurring in a vacuum. Many other factors like corporate earnings, U.S. politics, and central bank policy are also influencing markets. One cannot completely isolate one factor from another. As an example, investors should probably take some comfort that global central banks are likely to provide support should there be a notable deterioration in financial conditions.

It's way too early to assess the potential economic impact of the outbreak, but a slowdown in China’s economy seems likely. That said, a rebound also seems likely if the virus can be contained. In the U.S., we think that the economic impact will likely be more limited because its economy is more domestically-focused and it is not currently subject to either quarantines or travel bans. While the coronavirus may lead to a market pullback in a somewhat frothy (or stretched) U.S. stock market, history suggests to us that the impact of the virus is likely to be temporary and rebounds can occur almost as quickly.

Epidemic / Pandemic S&P 500 Peak-to-Trough Dates During Emergency S&P 500 Return
(% Change from Peak-to-Trough)
S&P 500 Return
(6-Months After Outbreak)
SARS January 15, 2003 - March 11, 2003 -12.80% 8.95%
Avian Influenza January 23, 2004 - August 12, 2004 -6.90% -4.85%
MERS September 1, 2012 - November 15, 2012 -7.30% 7.69%
Ebola December 31, 2013 - February 3, 2014 -5.80% 6.05%
Zika November 6, 2015 - November 11, 2016 -12.90% -1.93%
Average: -9.14% 3.18%
This table shows S&P performance during and after past health epicdemics.
Sources: Citi Investment Research and Analysis – U.S. Equity Strategy, Haver Analytics, and Citi Personal Wealth Management as of January 30, 2020. Past performance does not guarantee future results. You should carefully consider investment objectives, risks, charges, and expenses before investing.