by Gary Alexander

February 11, 2020

I just got off a cruise ship. Many others weren’t so lucky. They were detained indefinitely due to a suspected outbreak of the coronavirus among some passengers in Asian waters…and in New Jersey.

There is a serious crisis in and around Wuhan, a Chinese city I visited for a few days in 1996 as part of an investment seminar. I remember the quaint little stock betting rooms, which resembled off-track horse betting parlors. (I say “betting” quite literally, as these weren’t investors but short-term gamblers.) About half of our 32 U.S investors got sick on that tour from some sort of disgusting meat sold in public markets.

Unfortunately, an estimated five million Chinese people have left Wuhan in advance of the quarantine or to celebrate the Lunar New Year with their families. As a result, they may be spreading the disease due to its 14-day gestation period. Big companies like Apple and Ikea have shut down their stores in China.

Navellier & Associates owns AAPL, in some managed accounts and or sub-advised mutual fund but does not own IKEA.  Gary Alexander does not own AAPL or IKEA in personal accounts.

But will the U.S. market collapse over such fears? Not likely. We got one answer with last week’s strong rally. Looking further backward, Jeffrey Kleintop, Chief Global Investment Strategist at Charles Schwab, looked at 13 previous global epidemics since 1981, finding that the global market (as measured by the All-Country World MSCI stock price index) was up an average 8.5% six months after first outbreak.

World Epidemics and Global Stock Market Performance Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Kleintop concluded:

“If the spread of the nCoV2019 virus tracks a pattern similar to those tracked in the past by the World Health Organization, the number of confirmed cases will rise sharply for eight to ten weeks, then the infection rate will likely start to taper off into the spring months. Travel may return, along with consumer spending, setting up for an economic rebound in the second quarter similar to the timeline for SARS…”

Not to minimize the coronavirus threat, but this strain is still far less deadly that any “normal” flu season.

The Centers for Disease Control and Prevention (CDC) tells us that in the last two winters there were 80 million cases of flu in the U.S, with 37.5 million clinic visits and 1.3 million hospitalizations, resulting in an estimated 95,000 U.S. deaths. That certainly didn’t halt the bull market’s progress! From 2010 to 2017, the CDC says flu deaths per year ranged from 12,000 to 61,000 deaths per year. Outbreaks each year have run between nine million and 45 million, while hospitalizations have run from 140,000 to 810,000 a year.

Estimated United States Influenza Burden Pictogram

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

As of last Sunday, coronavirus has killed 812 worldwide, but only one outside China, and that was in The Philippines. The core of the economic threat is that it will destroy economic supply chains in China, not millions of lives. There are only 12 confirmed cases in the U.S., and no deaths, vs. nearly 40,000 deaths per year from flu and its complications (2010-19). So far this winter, about 10,000 Americans have died from flu, with over 19 million stricken – but all those years (2010-19) were bull market years in stocks.

Fearing a new virus over flu is like obsessing over sharks or lightning bolts, while cars kill 40,000 a year.

These periodic epidemics generally rise rapidly and fall fairly rapidly, in a pattern similar to this:

Ebola Outbreak Bar Graph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Epidemic Model is Also Evident in “Viral” News Stories

In his October 2019 book, “Narrative Economics,” Professor Robert Shiller compares viral news stories to medical epidemics. News stories build by viral phrases and they “infect” our mind – whether it be impeachment fever, Bitcoin mania, Ebola panics, Brexit fears, a Supreme Court nomination, or whatever.

Shiller says, “We can apply this same model to epidemics of economic narratives. Contagion occurs from person to person through talk, whether in person or through telephone or social media. There is also contagion from one news outlet and talk show to another, as they watch and read one another’s stories.”

In his opening chapters, Shiller reminds us that the hottest news item in the 1890s was gold vs. silver (Bimetallism), a hot debate between a pure gold standard (Republican) vs. silver and gold (Democrats).

Here’s his chart of news references to these two manias – Bimetallism (1890s) and Bitcoin (2010s).

News References to Two Manias Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

According to Dr. Shiller, “The science of epidemiology offers valuable lessons and may help explain how the story of Bitcoin (and many other economic narratives) went viral.” A chart of Bitcoin prices overlaps the number of news stories about the coin. Bitcoin peaked at $19,783 in late 2017, collapsing to $3,300 a year later (-83%), then clawed its way back, in parallel with the rise and fall of Bitcoin Google searches:

Bitcoin - Google Trends versus Price Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

People don’t want to research Bitcoin when its price is low, but they can’t get enough news as it peaks.

Google "Trends" versus Bitcoin Price Charts

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In general, Shiller writes, “In both medical and narrative epidemics, we see the same basic principle at work: The contagion rate must exceed the recovery rate for an epidemic to get started…. With narrative epidemics there may be two different narratives, one with some minor story details that make it more contagious than the other.” One story causes an epidemic, while the positive narrative (the cure) is buried.

The stock market’s drop in the latter half of January was probably caused by the flu panic, but the market suddenly realized story #2, that this epidemic will likely be contained, and coronavirus fear will peak too.

Standard and Poor's 500 Stock Market Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This was yet another buying opportunity. There will certainly be more such opportunities later this year.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
The Good Economic News Keeps Rolling In

Income Mail by Bryan Perry
Good Tidings for the Average U.S. Household

Growth Mail by Gary Alexander
Will the Coronavirus Infect This Bull Market?

Global Mail by Ivan Martchev
New Lows Coming for Crude Oil?

Sector Spotlight by Jason Bodner
The 5% Correction Was Over in a Flash. What’s Next?

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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