Financial markets loath uncertainty, and the outbreak of the coronavirus – COVID-19 – epitomizes the type of uncertainty for which equity market participants have little tolerance. In the matter of one trading week, sentiment has reversed abruptly, with the S&P 500® Index declining 12% in just 6 trading days after posting a new all-time closing high.
The human toll is of course the greatest concern, and the ability to control or in some way contain the virus is foremost on the minds of all, most notably government and health care officials.
The initial market response to the virus outbreak was largely one wherein the attention remained on the broader narrative: modest first half economic growth followed by the prospect of output accelerating as the resolution of trade disputes and ongoing central bank stimulus – coupled with a U.S. Presidential election – would yield to a stronger back half and global economic momentum entering 2021.
Alas, the narrative shifted quickly as realization the human toll was more pronounced, and much trickier to diagnose/contain given the disease had infiltrated over twenty countries, and lock downs from northern Italy to Seoul mirror travel bans to and from China. Per a recent NY Times article, the CDC director of the National Center for Immunization and Respiratory Diseases said that cities and towns should plan for “social distancing measures,” like dividing school classes into smaller groups of students or closing schools altogether. Meetings and conferences may have to be canceled, the director said. Businesses should arrange for employees to work from home. “We are asking the American public to work with us to prepare, in the expectation that this could be bad,” Dr. Messonnier said.
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