U.S. equity markets have experienced turbulent trade recently as investors keep watch of a deadly viral outbreak in China.
However, gauged by the market’s performance during the onset of other infectious diseases, including SARS, or severe acute respiratory syndrome, Ebola and avian flu, Wall Street investors may have little to fear that the pathogen will sicken a U.S. stock market that finished 2019 with the best annual return in years and finished Thursday trade at all-time highs.
That said, many investors are recommending caution amid the current bout of coronavirus that was reportedly first identified late last year in Wuhan City, China, and has claimed 630 lives, with about 31,500 people sickened as of Friday, according to reports. The ability of the virus to halt travel and harm consumption, particularly in Beijing, are some of the ways an outbreak is likely to have economic implications that could wash up on U.S. shores.
“Risk velocity – the pace at which major risks and ‘black swan’ events can affect asset prices – is elevated in today’s markets compared to 10 years ago for three key reasons,” said Seema Shah, chief strategist at Principal Global Investors, in a research note, referring to the theory for the impact of unexpected events on markets and economies, popularized by Nassim Nicholas Taleb in his book The Black Swan: The Impact of the Highly Improbable.
The strategist said a social-media driven news cycle, the interconnectedness of global supply chains and a pricey stock market, make Wall Street more vulnerable to a black swan.
“External shocks can derail economic trends and abruptly alter market sentiment. Not all risk is economic policy or monetary,” wrote David Kotok, chairman and CIO at money manager Cumberland Advisors, in a recent research note.
On Thursday, the Dow Jones Industrial Average DJIA, -0.94%,