Reed Between The Lines

Reed Between the Lines: Coronavirus in Context

28 January 2020

By: J. Reed Murphy, CIO

Contributions by: Rob Young, CFA 

The Coronavirus is creating concern across the globe amidst the risk-on market we have experienced. Prior to January 27, 2020, the S&P 500 hadn’t had a negative daily return of less than a negative 1% in 75 trading days, since October 8, 2019. While we don’t want to diminish the impact on society -- as investors, it’s important to highlight that the health of the global economy and health threats to global populations are not strongly correlated.  


According the World Health Organization, Coronavirus is actually a large family of respiratory viruses that can cause diseases, ranging from the common cold to the Severe Acute Respiratory Syndrome (SARS) we experienced in 2002/2003. The current Coronavirus and SARS are both believed to have originated from animals.

Although it is early, some sources are suggesting that the effects of Coronavirus today may be less severe than SARS. Importantly, it does appear that the incubation period for the two are different. SARS gestation normally took 2 to 3 days, while the current Coronavirus takes 7 to 10 days. This is important as markets previously recovered after sited cases started to decline – meaning this period may take a bit longer. Another major difference is that the reaction from Chinese authorities has been altogether swifter and more transparent. It is also important to note that medical services and personnel appear more sophisticated and better prepared. 

Market History as Context

Over the last sixty plus years, we’ve seen numerous epidemics/pandemics with two of the most recent and notable being the Swine Flu Pandemic (H1N1) that lasted from April 2009 to late 2010 and SARS (Severe Acute Respiratory Syndrome) virus during late 2002 and 2003. (An epidemic is described as an infectious disease that spreads rapidly, but it tends to be more localized whereas a pandemic is a global disease outbreak (WebMD)). 

While estimates of casualties for each vary, it is important to note that markets recovered from any negative symptoms. In fact, according to the exhibit below, since 1957 the S&P 500 Index generally performed well 1-, 3-, 6- and 12-months after each outbreak. A similar behavior is witnessed on a global equity market (MSCI ACWI) basis. More importantly, one should consider the broader economic and market environment. For example, the Swine Flu Pandemic coincided with the recovery from the Great Financial Crisis, while the SARS episode overlapped with the tech bubble crisis.

EXHIBIT 1: The S&P 500 Index Tends To Look Past Historical Outbreaks 

Epidemics and Pandemic episodes sourced by MarketWatch and Strategas to capture a fuller dataset.  Returns calculated from month-end of publicly available outbreak dates. Sources: Bloomberg. Past Performance is no guarantee of future results; Initial outbreak dates source: Asian Flu: Encyclopedia Britannica; Hong Kong Flu: Encyclopedia Britannica; India Smallpox: World Health Organization; HIV / AIDS: CDC; Pneumonic Plague: CDC; SARS: Wikipedia; Avian Flu: Wikipedia; Dengue Fever: NDTV, Swine Flu: CDC, Cholera: Foreign Policy, MERS: CDC; Ebola: New England Journal of Medicine; Measles / Rubeola: CDC; Zika: NPR; Measles / Rubeola: Discover

What to do?

While we do not yet know the full reach and impact of the Coronavirus, we do know that making changes in portfolios at this point would be based on unknowns, emotions, and speculation. And, it would ignore important broader economic issues.

Markets may deserve a consolidation here. While the S&P 500 may drift lower amid this period, it is also important to note that economic fundamentals are good and U.S. corporate earnings are hitting a busy week. Regarding a potential pullback, the S&P 500 has support levels at 3,200 (50-day moving avg), 3,095 (100-day moving avg) and 3,003 (200-day moving avg). Many strategists are currently considering softness as buying opportunities.

We will continue to monitor this situation and provide more context as events warrant. Stay tuned.


Please remember that past performance may not be indicative of future results. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. The information contained therein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the information mentioned, and while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Calamos Wealth Management LLC), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. 
Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Calamos Wealth Management LLC.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Calamos Wealth Management LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  If you are a Calamos Wealth Management LLC client, please remember to contact Calamos Wealth Management LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Calamos Wealth Management LLC’s current written disclosure statement discussing our advisory services and fees is available upon request. 
S&P 500 Index is generally considered representative of the U.S. stock market.
MSCI ACWI is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world.