Earlier in January, Chinese officials tied the outbreak of pneumonia in Wuhan, a port city of 11 million people, to the coronavirus virus. It belongs to the same family of viruses as SARS (Severe Acute Respiratory Syndrome) which killed 774 people in 2003. And as it did during the SARS crisis, the market has sold off as it priced in the damaging impact that a repeat of that epidemic could have on the global economy.

The coronavirus, now called Covid-19, does appear to be spreading with major outbreaks in Italy, South Korea and the Middle East. How will markets ultimately react this growing crisis? If the number of cases continues to increase, markets could continue to be volatile. However, opportunities may present themselves in good regions, sectors and stocks. Indeed, shorter-term reactions sometimes create longer-term value.

Ultimately, however, the coronavirus virus will be contained. And as the chart below illustrates, while the market sold-off sharply during the SARS epidemic, it quickly rebounded as the outbreak was brought under control. Will history repeat itself?

The SARS bounce back

The S&P 500 tumbled 14% over two months in early 2003, followed by a 12% snap-back rally in just 10 days (Chart below.)

Source: Bloomberg.


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