How 5 Pandemics Before Coronavirus Impacted the Stock Market

pandemics - How 5 Pandemics Before Coronavirus Impacted the Stock Market

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Pandemics are not a new occurrence, and currently, the stock market is in panic mode. In an attempt to stop the rapidly spreading coronavirus from China outbreak — formally dubbed COVID-19 — leaders across the globe have brought the global economy to a screeching halt. A large majority of employees are working from home. Consumers are being told to stay home. Restaurants and shops are being told to shut down.

The world, quite simply, has stopped. And stocks have consequently fallen off a cliff. In a matter of a month, the stock market has dropped more than 35%.

To make matters worse, Italy is reportedly running short on medical supplies to treat its coronavirus victims (and it looks like every other country could face a similar shortage), experts are making doomsday forecasts calling for millions of people to die, consumers across America are panic-buying everything from hand sanitizer to toilet paper, and Contagion — the 2011 film about a near-world-ending pandemic — has become the world’s most watched movie.

So, is this it? Is this really the end of the world as we know it?


As Tod Schneider, a senior lecturer in finance at The Ohio State University Fisher College of Business, said in an email to InvestorPlace, ” In order to gain perspective on the potential economic impact of a pandemic one needs context and I think history as well as what’s happening in China today, provide a window into our economic future.”

Like I stated before, this is not the first pandemic the world has ever seen. We’ve had five pandemics like coronavirus since 1900, and all five resulted in some near-term societal and economic panic. All five took a bite out of the stock market.

None of them ended the world, or even lasted that long. Instead, all of them ended with the world returning to normal, and stocks rallying to new all-time highs.

None of this is to say that COVID-19 isn’t a big deal. It is. We all need to do our part, and socially distance ourselves from people not in our household. The sooner we all do that, the sooner this will all be over.

But, it is to say that this isn’t the end of the world, or the death of the stock market. Both the world and stocks will bounce back. And, if history is any indication, we won’t have wait that long for this bounce-back.

Previous Pandemics: The Great Encephalitis Pandemic (1916)

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Pandemic Duration: A decade

Casualties: Unknown; likely over a million

Dow Jones Impact: Impossible to discern

The first documented pandemic of the 1900s was The Great Encephalitis Pandemic.

There isn’t a tremendous amount of data on this pandemic. But, we do know that it was nicknamed the “sleeping sickness”, because the disease would attack the brain, and leave some victims in a statue-like condition, both unable to speak or move. It was a particularly deadly disease, killing about a third of people it infected and leaving the rest permanently impaired. And it lasted forever, dragging on from 1916 to 1926, with particularly potent peaks in 1920 and 1924.

During that time, it is estimated that the pandemic infected several million people across the globe.

It is nearly impossible to gauge the economic impact of this pandemic on the stock market or the U.S. economy. The pandemic lasted forever, and coincided with events such as World War I and the Roaring Twenties. Still, we can see that the market was, at best, choppy during the late 1910s when the virus first arrived.

The Spanish Flu (1918)

Previous Pandemics: The Spanish Flu (1918)

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Pandemic Duration: Two years (shorter in the U.S.)

Casualties: Between 17 million and 50 million

Dow Jones Impact: Stocks fell 10% in a few months at the height of the pandemic, then rebounded as soon as the flu cleared up

The most infamous pandemic of the 1900s was the Spanish Flu, which first emerged in January 1918 and didn’t fully fade out until December 1920.

Through 3 waves over 2 years, the Spanish Flu infected about 500 million people (nearly a fourth of the world’s population at the time). It killed somewhere between 17 million and 50 million people, with most estimates hovering around 30 million to 40 million. In other words, it was a very deadly and very contagious disease that impacted just about everyone.

In America, the second wave of the Spanish Flu — which struck from October to December 1918 — was particularly deadly. During this second wave, the Dow Jones dropped about 10%. But, as soon the as flu cleared up in January, the market bounced back in a big way, and stocks proceeded to have a huge up year in 1919.

“In my view, the 1918 and 1968 pandemics are helpful guides in that both exhibit some similarities to the current pandemic.,” said Schneider. “I reviewed Sears Roebuck’s annual reports from 1915-1920 and 1966-1970 in order to get a sense of the impact a pandemic has on the consumer via a large cyclical business. While the 1915-1920 annual reports were sparse (3 pages), I was surprised to learn that sales actually increased year-on-year (y/y) each year from 1915 through 1919 (1920 sales declined 0.1% y/y). However, it was noteworthy that despite the +1.2% y/y increase in sales in 1918, Sear’s profit declined 10% y/y.”

Of note: during the Spanish Flu, Americans did not practice social distancing. Although the labor force was hit hard — many of the victims were young adults — the economy did not shut down, and shops and stores remained largely open.

The Asian Flu (1957)

Previous Pandemics: The Asian Flu (1957)

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Pandemic Duration: About two years (shorter in the U.S.)

Casualties: 1.1 million globally (about 116,000 in the U.S.)

Dow Jones Impact: Stocks dropped 15% during the peak of the pandemic in late 1957, before rebounding big in 1958

The second major flu pandemic of the 1900s was the Asian Flu. It originated in China in February 1957, and started to pop up in the U.S. by June of that same year.

Relative to the Spanish Flu, the Asian Flu was much less deadly and infected far less people. Nonetheless, the numbers were still sizable. About 1.1 million globally died of the Spanish Flu, including over 100,000 Americans. The huge numbers here can be largely attributed to the fact that, as was the case in 1918, Americans did not exercise social distancing during the Asian Flu. The economy, by and large, remained open.

Perhaps for those same reasons, the Asian Flu exacted very little economic or financial market damage during 1957. Yes, the second and biggest wave of the Asian Flu hit the U.S. hard in November 1957, and the Dow Jones dropped 15% from July 1957 into the end of the year. But, that’s because of a recession which coincided with the pandemic, and that recession was largely because of inflation and high interest rates.

Overall, by 1958 when both the pandemic and recession were over, stocks were surging back to new highs.

The Hong Kong Flu (1968)

Previous Pandemics: The Hong Kong Flu (1968)

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Pandemic Duration: About two years (much shorter in the U.S.)

Casualties: About 1 million globally (around 100,000 in the U.S.)

Dow Jones Impact: Stocks dropped about 10% during the height of the outbreak, before rebounding quickly over a few months, and then dropping much further on the back of the 1969-70 U.S. Recession

The Hong Kong Flu — the world’s third influenza pandemic of the 1900s — originated in China in 1968. It was a very contagious pandemic, with about 15% of Hong Kong residents contract the illness during the pandemic. It ultimately resulted in about 1 million deaths globally, and 100,000 deaths in the U.S. — similar numbers to what we saw with the Asian Flu of 1957.

Also similar to the Asian Flu, the Hong Kong Flu did not shut down the U.S. economy. By and large, stores and shops remained open, and business went on an usual.

That is perhaps why, also much like the Asian Flu, the Hong Kong Flu did not hit the U.S. economy that hard. The first cases of the Hong Kong Flu in the U.S. were reported in September 1968. By December 1968, the flu was widespread across the nation. In January 1969, the number of cases in the U.S. peaked. Thereafter, the pandemic faded.

“From the 1968 Sears annual report regarding the outlook for 1969, ‘While economic restraints now in effect may slow the rate of growth in 1969, we expect sales of general merchandise retailers to increase at a rate of six per cent, compared with 8.5 per cent growth realized in 1968.’ In fact, sales growth registered year on year growth of 8.1% in 1969,” wrote Schneider.

During that stretch, the Dow Jones dropped about 10% in late 1968, before rebounding in early 1969. Stocks proceeded to drop after that quick rebound, but again, that’s because of a largely unrelated recession which took place in 1969-70 on the back of accelerating inflation.

Swine Flu (2009)

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Pandemic Duration: Less than two years

Casualties: 150,000 to 750,000 globally

Dow Jones Impact: Stocks dropped 7% during the summer of 2009, before rebounding big into the end of the year

The most recent of the influenza pandemics was the Swine Flu, which emerged in January 2009 and lasted until about August 2010. The disease killed somewhere between 150,000 and 750,000 people globally along the way, with a death rate that was very similar to the typical flu.

In April 2009, the first cases started to emerge in the U.S. By May, schools across the country were dismissed. The World Health Organization declared the Swine Flu a pandemic in June. By August, a second wave hit the U.S. hard, resulting in more school closures. But, in October, the first vaccine was administered, and by late October, cases in the U.S. peaked. By late November, schools started to re-open, and the hysteria had largely faded.

During that time, the markets were impacted. During the summer of 2009, the Dow Jones dropped about 10%. But, stocks quickly rebounding in the back-half of the year.

Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm.  As of this writing, he did not hold a position in any of the aforementioned securities.

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