By Gary Alexander

March 17, 2020

The 2009-2020 record-long bull-market finally ended after nearly 11 years, with the S&P 500 peaking at 3,393.52 at 2:40 pm on February 19, 2020, then falling nearly 30% in barely 17 trading days to 2,386 on March 16.

Here’s the statistical tale of the tape for an 11-year mega-bull, and then a month-long blood bath:

Statistical Tale of the Tape Table

Even though falling interest rates and oil prices (amid political uncertainty) played a part in this panic, it’s now clear that the spreading coronavirus threat is the main cause. History indicates that such fears pass fairly quickly, including the largest such panic in modern history. World War I brought a terrible new brand of war, killing over 10 million men in four grinding years of battle, using new forms of weaponry and tactics, including tanks, aerial warfare, chemical warfare (including mustard gas), trench warfare, and machine guns mowing down tens of thousands per day in senseless assaults from those muddy trenches.

However, the Spanish Flu of 1918-19 killed at least twice as many as World War I – between 20 and 50 million, including maybe 500,000 to 675,000 Americans. (The flu’s name was a slander on Spain, as the flu was likely born somewhere on the farms of Kansas and bred in Fort Riley, Kansas, according to “The Great Influenza: The Story of the Deadliest Pandemic in History,” by John M. Barry, published in 2005.)

The important investment angle is that this flu peaked in America around Armistice Day, November 1918, and then had another surge of deaths in March 1919, but the Dow kept rising, +30.5% during 1919.

Spanish Flu and DJIA

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

This rapid rise is the norm, not the exception, following past outbreaks of killer virus attacks. Last week, I told you that the 2009 attack of “swine flu” (H1N1) hit America in April 2009, early in President Barack Obama’s first year. There were over 1,000 deaths by October 2009, when Obama finally called the virus a national emergency. In all, over 12,000 Americans died by the following April when the bug died out, but the S&P 500 rose 34% between April 1, 2009, when the bug entered America from Mexico, and April 1, 2010, when the danger ended. That was the first year of this recent 11-year bull market, rather than the tail-end of the bull market (as recently), but it goes to show that the virus alone can’t ruin an economy.

Jeffrey Kleintop at Schwab has done the heavy lifting of comparing market recoveries to all of the major epidemic outbreaks of the last 40 years, and he came up with the following chart of stock market returns in the global arena (using the MSCI World Index) in the 1-, 3-, and 6-month periods after initial outbreaks:

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

Chances are this recent market crash is an overreaction. How can the swine flu of 2009 kill 12,000 with no panic – in fact, a 34% market gain – while this three week attack of 50+ deaths caused a 27% market crash, the end of all sports leagues, and the self-imprisonment of an entire nation, if not the whole world?

These recent precautions are prudent – better safe than sorry – and we could all use some more time for careful reading and reflection, but there’s a good chance that we are overreacting once again. As a veteran journalist with 52 years of experience in covering doomsday theories, I can’t recall one of them panning out as bad as threatened. I would be surprised if this bug turns out as bad as the press is warning us.

Corona Virus Data Pack

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

The final panel of this informative chart series shows how the press mentions of coronavirus (COVID-19) swamp all previous epidemics, which is partly due to Internet news saturation, but we also had Internet coverage during SARS, MERS, Ebola, Zika, and H1N1, but not to the total 24/7 immersion of COVID-19.

What to do Next – Check out Healthcare Stocks

While we are holed up in our homes, we can take some consolation that our world-class pharmaceutical companies (which certain political candidates love to berate) are working overtime developing an antidote to coronavirus. America (and a few other nations) have a few small biotech firms and big pharmaceutical companies, perhaps since so much of the rest of the world has socialized health care, which has taken all of the profit motive out of finding life-saving solutions to health challenges. If you look at the 10 largest Pharma companies in the world, six are domiciled in the U.S. and two of the top five are domiciled in Switzerland, since those two independent nations still allow companies to profit from their patents.

The S&P Health Care sector has recovered somewhat after Elizabeth Warren and then Bernie Sanders began to fade from their front-runner status in the Democratic campaign, but health care stocks still deserve some more love, in my view. According to Ed Yardeni, the sector has seen healthy earnings growth. In fact, he said, “The percentage of earnings that it contributes to the S&P 500 (16.3%) is almost three percentage points above the sector’s market-capitalization share of the S&P 500 (13.9%)

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

The last time that happened, Yardeni said, was during 2008 to 2010. In almost all prior periods going back to 1985, the sector traded at a premium to its earnings contribution. Earnings and revenues in the sector are expected be up 8.3% and 7.8%, respectively, in 2020, which is tops for all 11 S&P sectors.

Even so, the Health Care sector’s P/Es were far lower than the other sectors’ P/E multiples as of the market’s peak (on February 20, 2020): Real Estate (46.4), Consumer Discretionary (23.6), Information Technology (23.0), Utilities (21.0), Consumer Staples (20.5), Communications Services (19.5), S&P 500 (19.1), Materials (18.9), Industrials (18.5), Energy (16.8), Health Care (16.2), and Financials (13.3).

I’m neither a doctor, nor a scientist, nor a registered investment advisor, so I can’t advise you on specific biotech companies now in the lead on vaccine research for COVID-19 prevention. I read the same names the analysts on Wall Street do, so I have no advantage over anyone else. What I do know is that the healthcare sector has been beaten down due to political flagellation for their profit motive. Some of that abuse is justified for some specific companies in the opioid crisis, or in pharmaceutical price gouging. I also know that two of my most successful investments over the years have been specific companies that researched and developed specific treatments for specific maladies, and they made money responsibly.

With stock prices now lower, mergers & acquisitions are happening, as CEOs lap up bargains. Perhaps you and I should examine these bargains, too. I’m not naming names or times, but time heals all wounds, and wounds all heels, so the bad companies may get washed out, and some great survivors could revive.

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

Please see important disclosures below.

About The Author

Gary Alexander

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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