Coronavirus Crash Will Leave Stocks Higher 12 Months From Now, History Shows

Investors are acting like the world is about to end.

But the truth is that the Coronavirus won’t destroy global business any more than previous viral outbreaks, at least if history is anything to go by. Better still stocks should rally over the next 12 months, leaving investors ahead of the game.

Of course, it doesn’t look like that now.

Dark Days On Wall Street

The S&P 500 is down around 11% over the past month with most of that drop in the last five days. And the mood of many investors says that we could see more of the same downdraft in the markets over the coming days.

But take heart, previous viral outbreaks have seen stocks quickly rebound. Specifically, in each of the last five virus-led declines in the market, stocks recovered all their losses and then gained some more within a year.

Or put another way, in each of those instances, if you owned stocks the day before the viral outbreak, a year later, your holdings would be worth more, according to an analysis from Chicago-based wealth management firm Cresset Capital.

Analysis of History

Cresset looked at each of the last five viral outbreaks and analyzed how much the broad stock market fell during the outbreak and where it was a year later.

In all five cases, the S&P 500 was up a year later compared to where it was the day before each crisis broke out. In two instances, the market rallied more than 20%, and the lowest gain was 7.8%.

These viral incidents in chronological order are SARS (2003,) Avian Flu (2004,) MERS 2012, Ebola (2013-2014) and Zika (2015-2016.) None of these events lasted more than a few months, and none lost money for investors who held onto their stock holdings.

300+ years of Historical Comparisons

Other research on pandemics by Hackett Financial shows that most major viral outbreaks, such as the Great Plague of 1665 and the Spanish flu a little over a century ago, played out within 3 months. In other words, those bad events came and went mainly within 12 weeks.

There’s more good news for investors. The Cresset analysis points to some tailwinds we now see in the global economy that should be appealing to investors. Notably, low borrowing costs and a strong labor market are very much in place and supportive of growing corporate profits. It is that future stream of corporate income that creates value in the market over the long term.

Is it different this time?

One caveat needs to be addressed. Is this one virus going to buck the trend of previous crises of a similar type?

It could be different but we won’t know for sure for a few more weeks.

But so far nothing reported suggests it is any different. And if it isn’t different then why should the markets behave in a different way to how they did in the past?

Source link

Get The Best Financial Tips
Straight to your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.

Share with your friends!

Products You May Like

Leave a Reply

Your email address will not be published. Required fields are marked *

Get The Best Financial Tips
Straight to your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.