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Health Scares Have Hurt Markets Before: Here’s What Happened Next

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The anxiety of coronavirus, or COVID-19, has officially gone beyond the risk of catching the illness. Health organizations worldwide have tried to quell fears by telling everyone the risk significantly decreases by simply washing your hands. However, it appears that the markets can’t simply wash its hands of this most recent health scare.

As the death toll tragically continues to climb, the markets continue to fall. As fear continues to spread, the TSX and other major trading composites have dropped hundreds of points.

While it’s sometimes easy to panic, there have been times in the past where a health scare has upset the marketplace. So let’s take a look at what’s happened over the last two decades in case history should once again repeat itself.

SARS

COVID-19 is most often compared to severe acute respiratory syndrome, better known as SARS. This is therefore a good place to start in terms of comparability when looking at how the markets reacted to the scare.

Similar to the coronavirus, SARS came on the heels of a bubble, namely, the dotcom bubble. As the market bubble burst, SARS was the catalyst that sent them tumbling downward.

As SARS continued to infect thousands in 2003, the MSCI Pacific ex Japan Index tumbled by 13% at the start of the year. By the end of the year, however, it was up by 40%!

It wasn’t just in Asia, however, as the S&P 500 dropped 12.8% between January and March 2003, only to rebound by 26% by years’ end.

Ebola

While Ebola became a nightmare on the world stage, the markets weren’t actually affected as much. At its peak, the S&P 500 dropped just 5.8% between December 2013 to February 2014.

So again, we see a short period when the markets went into a panic at what this illness would mean for trading. Once the initial panic period subsided, the markets returned to normal, increasing substantially before the end of 2014.

Zika

Finally, the world is still being warned about the Zika virus; this is where we see the closest comparison to COVID-19. Between November 2014 and February 2016, the S&P 500 dropped 12.9% on virus fears, just 1% higher than the SARS outbreak reaction.

By March 1, 2016, the markets had returned back to where they were before the initial reaction. And as I mentioned, Zika is still around. So it’s not as though a cure was needed to put the markets back on track.

Coronavirus

Since January, the S&P 500 has dropped about 9%, with a huge plummet near the end of February all linked to COVID-19. As markets continue to panic, some analysts expect the fall to continue.

However, analysts such as those at JP Morgan believe that not only does this give investors a buying opportunity, but it’s the correction the markets needed after more than a decade of solid gains.

If we’re to look at these other examples of where the future lies with COVID-19, I think it’s safe to say that we should see the market back to where it was before the outbreak in six months at most.

In the meantime, the main advice I can give you is to turn a blind eye to your investment portfolio if you don’t have the stomach to invest — and please wash your hands.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned.

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