Contagion

By Alex Eule  |  Tuesday, January 21

Contagion. It turns out there is something that can stop the 2020 stock market: worries about an epidemic. A respiratory virus known as coronavirus has been blamed for six deaths in China. It has begun to spread through a large swath of Asia, and, on Tuesday afternoon, the U.S. Centers for Disease Control said the first case had been identified in the U.S., in Washington state. (The U.S. had already begun screening travelers from Wuhan, China, at airports in San Francisco, New York, and Los Angeles.)

Investors quickly went to worst-case scenarios. The 2003 pneumonia outbreak known as Severe Acute Respiratory Syndrome, or SARS, stemmed from a similar coronavirus. That virus caused significant travel disruptions through Asia. Barron's Leslie Norton covered the outbreak at the time, noting big declines for Asian markets, along with empty coffee shops and airplanes as panic spread. 

SARS ultimately spread to 29 countries, infecting 8,096 people and causing 774 deaths, according to the CDC. But public health officials were able to contain the spread of the disease. Only eight people in the U.S. got SARS, and none of them died. 

Nonetheless, on Tuesday, the new coronavirus was already having a financial impact in the U.S. Wynn Resorts, Las Vegas Sands, and MGM Resorts -- gaming companies that all have significant exposure to Asia -- along with Royal Caribbean Cruises, American Airlines, and United Airlines were among the worst-performing stocks in the S&P 500. They each fell at least 4% on the day. 

The Dow Jones Industrial Average lost 152 points for its first decline in six sessions.

Here's how Alec Young, managing director of global markets research at FTSE Russell, assessed the situation:

From an investment standpoint, the risk with any virus is in the scope of its economic impact, and the mere fact that this has spread from China overnight to the U.S. so quickly reinforces the idea that the negative fallout could be global rather than local. Of course, it’s very early and we want to be careful not to overreact until more facts emerge but, given the global economy’s sluggishness in recent months and overall reliance on the U.S. and China to drive growth, it’s no surprise this issue has investors on edge. Another factor at play is the fact that the U.S. markets had a tremendous run-up, leaving it more vulnerable to profit-taking than usual.”