COVID-19 related fear has gripped markets, driving the Dow Jones Industrial Average and the S&P 500 Index into bear territory. As difficult as these markets are for all of us, there are reasons to be reassured coming out of China, specifically in Wuhan, the epicenter of the outbreak.
Yesterday in a sign of an improving situation in Wuhan, the last two of 16 temporary hospitals built to help COVID-19 patients were shut down. The last patients were discharged to cheers from onlookers as containment measures put in place appear to be working well to curb the spread of the virus, with only 15 new cases reported yesterday. The city has been on lockdown for more than 50 days now.
“Historically in pandemics, stocks have usually begun to recover as the number of new diagnosed cases stabilized, not necessarily even declined,” said LPL Financial Managing Director and Chief Investment Officer Burt White. “While this volatile enviroment is challenging, it can also present opportunities for suitable investors, as we still have confidence in the long-term fundamentals and prospects for the US economy.”
As shown in the LPL Chart of the Day, the S&P 500 Index’s reaction to the outbreak was somewhat muted when it was viewed as a China-only issue, with the potential to affect global supply chains, but volatility increased as the number of cases outside China spiked.
The number of new daily cases in China since beginning of the outbreak resembles a somewhat flattened bell curve. This distribution conforms to Farr’s Law, formulated in the 1800s by British epidemiologist Dr. William Farr, which predicts that epidemics normally follow a pattern of sharp increase, a peak, and then a decline back to a baseline. The reason for this pattern is that humans modify behavior to avoid getting sick and those who are sick seek medical attention leading to decline in new cases. There are good reasons to believe that this pattern will persist in other countries fighting major outbreaks as behaviors are modified through social distancing, quarantines, and other preventative measures put in place by local governments.
We continue to monitor this situation closely and will to report back to you frequently with progress toward containment as the bottoming process for markets unfolds.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
If your representative is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union.
These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use – Tracking 1-964525