Coronavirus Update: Impact on Your Health, the Economy and Stock Market
Everyone deals with major news events in different ways. I remember following the September 11th, 2001 terrorist attacks that some people immersed themselves in the constant media and news coverage. Others tried to return their lives to normal as best they could and minimized their exposure to news coverage.
The Journal of the American Medical Association conducted a survey of the impact of the 9/11 events and feelings of posttraumatic stress. The study found that the people who were the most distressed were those who consumed the most media and news coverage (which repeatedly showed the jetliners crashing into the World Trade Center buildings in New York City and Pentagon in DC.) This confirms my experience as a financial counselor: the people most upset by stock market declines and negative happenings surrounding such falls were those who consumed the most media and pundit-class. Much of the media dwells excessively on the negative and their coverage can be depressing and sensationalistic.
In the aftermath of the 9/11 attacks, air travel was briefly halted, and folks worried about more possible attacks. Statistically, the likelihood of additional attacks was incredibly low, and the 9/11 attack provided a much needed wake-up call to various entities that they needed to bolster security. Thus, air travel is notably safer now thanks in part due to the safety procedures implemented after the 9/11 attacks. (Aircraft are also safer today and digital doppler weather radar helps keep planes out of dangerous weather.)
Some folks were petrified of getting on an airplane after 9/11. Air travel was completely suspended in the U.S. through 9/13. The U.S. stock exchanges were shuttered through 9/17. Large and landmark buildings were also closed for a period of time.
The U.S. economy was already in a recession before the 9/11 attacks happened and the fallout from the attacks contributed to the pain. Stocks rallied sharply later in the year only to fall back and finally bottom late the next year. Continuing to buy and hold stocks during this period proved to be a wise decision for the longer-term. Selling at low prices in the aftermath of the 9/11 attacks was financially unwise.
Assessing Current Dangers and Risks
According to the U.S. Centers for Disease Control, for the most recent year in which full data is available (2017), the total number of deaths in the U.S. was 2,813,503 which amounts to about 1 percent of the U.S. population (0.86 percent to be exact).
Here are the numbers of deaths for the leading causes of death for the year:
- Heart disease: 647,457
- Cancer: 599,108
- Accidents (unintentional injuries): 169,936
- Chronic lower respiratory diseases: 160,201
- Stroke (cerebrovascular diseases): 146,383
- Alzheimer’s disease: 121,404
- Diabetes: 83,564
- Influenza and Pneumonia: 55,672
- Nephritis, nephrotic syndrome and nephrosis: 50,633
- Intentional self-harm (suicide): 47,173
Many of these deaths could have been prevented through improved lifestyle and health habits. According to the U.S. Surgeon General, smoking is the leading cause of preventable deaths and more than 16 million Americans (about 5 percent) are living with a disease caused by smoking. Obesity has many documented deleterious affects on personal health.
Some folks are simply the victims of bad luck and die of cancer even though they were leading a healthy life. But, a lot of health problems could be improved or avoided altogether with better health habits. And that’s clearly the case with coronavirus from many medical reports, studies and articles. Smokers and people who are overweight are far more likely to die from coronavirus. So, now would be a great time to stop smoking, lose weight and get some regular exercise. Those are all things you can control. Living your life, you can’t control being exposed a virus. Sequestering yourself at home 24/7 isn’t good for your health including your mental and emotional health.
Which leads us back to coronavirus health concerns. Data from a number of recent antibody studies are showing that the actual fatality rate from this virus is actually well under 0.5 percent. Antibody testing, such as was recently done by Stanford Medicine for thousands of people in Santa Clara County, CA, tested people’s blood for coronavirus antibodies which reveals people who were exposed to the virus and who have since recovered. This antibody blood study found that Santa Clara County actually has 50 to 85 times more people who had coronavirus than have been recorded.
To date, Santa Clara County has 70 reported deaths from 1833 reported cases. If you just take the low end (50x more cases) of antibody testing results, that implies the overall fatality rate is less than 0.1% (1 death per 1000 cases), about the same as for the seasonal flu. And, that would include high risk elderly people with major medical problems, such as folks in nursing homes and end of life care facilities. So, this study would indicate the fatality rate for working age people is well under 0.1%.
Charting the Likely Paths for the Economy and Financial Markets
In the past month, the number of U.S. workers who will have been laid off will approximately equal the total number of all jobs created over the prior 11-year economic expansion. The unemployment rate may breach 10 percent. Of course, the jobs held by workers who were recently laid off aren’t the same as those who were hired over the long economic expansion that preceded this sharp and sudden downturn.
Technology companies have hired an enormous number of workers over the past decade’s economic expansion. So too have big box stores like Costco, Target, Walmart, etc. These types of companies have fared well during the recent period.
The recent job losses have been heavily concentrated in the travel (e.g. airlines) , hospitality (e.g. hotels) and restaurant businesses. Numerous other small businesses whose business activity has been restricted by government have also laid off lots of workers.
The vast majority of these companies will be hiring their workers back. The many small businesses that are taking out loans through the Payroll Protection Program (PPP) have every incentive to hire their workers back so that the PPP loans are treated as grants and need not be repaid.
In addition to antibody testing data showing that the dangers from coronavirus are near zero for most working age healthy people, pinpointing effective treatments in the coming weeks through testing will further bolster people’s comfort in returning to their regular lives. And within the next year, there will be a vaccine which would be of greatest potential benefit to those in high risk groups.
Looking at the U.S. stock market, I’m going to start off by giving you a stat that will probably surprise you. The Nasdaq 100 index, which includes many of the large technology companies is actually up 1.1% for the year-to-date! Over the past year, it’s up 14.9%. Some companies in this index include Microsoft, Apple, Amazon, Alphabet (formerly Google), Facebook, Intel, Cisco Systems, PepsiCo, Comcast, Netflix, NVIDIA, Adobe, Costco, PayPal, Amgen, Texas Instruments, Charter Communications, Broadcom, Tesla, Gilead Sciences, and Starbucks. Diversified U.S. mutual funds have a healthy helping of these types of companies.
The S&P 500 index which is a broader measure of larger company U.S. stocks is down 11.0% year-to-date and down just 1.1% over the past year. Small company stocks have fared worse – the Russell 2000 index is down 26.3% year-to-date and down 21.5% over the past year.
Looking overseas, Morgan Stanley’s Asia-Pacific index is down 15.0% year-to-date and down 8.4% over the past year. The Euro-Stock Index is down 22.9% year-to-date and down 14.6% over the past year.
The U.S. stock market has already recouped about half of its losses from its peak earlier this year This stock market performance data strikes many people as being disconnected from what’s happening in the economy. But this isn’t unusual at what should soon be a turning point in the economy – remember that the stock market is forward looking which is why it has already had a solid bounce back. Reported economic data is what’s has just recently happened. Stocks plunged earlier this year from the expected economic damage that would result from government mandated shutdowns. Now, the expectation is that more people will begin returning to their work and economic activity will gradually pick up.
Could things get worse or simply continue to be bad without improving? Yes, anything is possible, but those outcomes aren’t probable which is why those waiting for lower stock prices have been disappointed with the powerful rally in recent weeks. When you invest in stocks, you’re doing so for the years and decades in the future, not for the outcome in coming weeks and months.