The possibility of a global pandemic virus spreading out of control is indeed terrifying. There is a very specific feeling of helplessness that accompanies fighting an enemy that is invisible, relentless and able to move among us silently, without remorse or hesitation. The investing public is rarely concerned about other catastrophes such as earthquakes that can spawn tidal surges, dirty bombs or even war.
The fear of societal breakdown, in part or in whole, due to an unchecked superbug is a different kind of nightmare, one that can impact public markets. Again, the fear is generally greater than the danger. Historically, it is not the outbreak that dents the indexes; it is the fear of the unimpeded spread that does the damage.
Initially ignored as a "Chinese problem," investors and issuers alike are now taking the coronavirus seriously and factoring it into their action plans. This logical reaction is more prevalent among issuers whose companies rely heavily upon China, but Pubcos with no China ties are also considering the ramifications of quarantines and other events that could impact operations.
Virus scares may cause a hiccup in the public sector but any corrections, historically speaking, are quickly shaken off. Between 2003 and 2016 viruses such as SARS, avian flu, swine flu, cholera and most recently the Zika virus seem to have come out of nowhere. Each, understandably so, caused widespread concern and was met with an immediate intervention from medical first responders.
In a recent CNBC article by Natasha Turak, billionaire hedge fund giant Ray Dalio, founder of Bridgewater Associates, which manages $160 billion in global investments, expressed his own opinion. Simply stated, he believes that any market volatility created by the Coronavirus Outbreak is likely exaggerated.
The CDC, and other similar agencies, have safeguards in place to protect the global population from pandemic viruses. The public markets hinge on the optimism and participation of global participants. Consequently, the better the CDC, and parallel agencies, can protect the general public, the better they ensure the health of the public markets.
According to the CDC, the 1918 influenza pandemic was the most severe pandemic in recent history. It was caused by an H1N1 virus with genes of avian origin. Although there is not universal consensus regarding where the virus originated, it spread worldwide during 1918-1919. In the United States, it was first identified in military personnel in spring 1918. It is estimated that about 500 million people or one-third of the world's population became infected with this virus. The number of deaths was estimated to be at least 50 million worldwide with about 675,000 occurring in the United States.
The US population in 1918 was a mere 103,208,000. The super flu reduced this figure by approximately 6.5%, a staggering figure when held in comparison to any viral outbreak ever since. To put this figure in perspective, the virus killed more Americans than were lost in WWI. Somehow, from November 1918 to June 1919, theDow Jones Industrial index rallied from 1,275 to 1,626, a staggering increase of more than 30%.
Why a robust stock market existed during an epidemic that generated so many fatalities is virtually inexplicable. Yet it occurred.
The one true danger to public health and public markets in times of viral contagion is the proliferation of bad information; rumors, unfounded speculation and fearmongering can do far more damage than the virus itself.
Depending on the overall economic environment, the public markets can also interpret viral outbreaks as a growth opportunity because research and development must be initiated to develop new treatments and vaccines. R&D sectors rally as other sectors fail.
Some Outbreaks Get All the Breaks
The influenza outbreak of 1918 is the one that gets all the attention. One explanation for this may be that after WWI there wasn't much going on. Newspapers had little to report, so the 1918 flu generated an abundance of coverage. This is not meant to trivialize the damage done by the 1918 pandemic, but it is a valid point to consider.
Fifty years later, the 1968 pandemic, more commonly known as the Hong Kong Flu, originated in China and lasted until 1970. The 1968 flu pandemic resulted in an estimated one million deaths, approximately 100,000 of which occurred in the U.S. These numbers are indeed smaller than the 1918 outbreak, but they are still quite considerable.
The major reason the Hong Kong Flu is far less memorable than its 1918 counterpart is due to the fact that it came on the scene during a tumultuous period in U.S. history. The flu hit the same year that Martin Luther King and Robert F. Kennedy were assassinated and the Vietnam War was rapidly escalating. There was plenty of news to go around, most of it bad, and the Hong Kong Flu never received the amount of media coverage it would have had it occurred in less eventful times.
Brave New World
On February 12, 2020, the date this article was originally published, there were a total of 14 documented cases of COVID-19 in the U.S. Since then, many things have changed.
Homeschooling and online education, two practices that were viewed with a certain degree of suspicion and skepticism, are now the norm. In order for "alternative education" to transcend from being the exception to the standard, it was necessary to shed unappealing imagery left over from episodes of Little House on the Prairie and news footage of eccentric parents preparing their children for the mother ship to arrive.
As always, rebranding saved the day. Terms such as synchronous e-learning and virtual classrooms make the practice formerly known as homeschooling sound rather futuristic. Remote learning is more than just socially acceptable, it is socially responsible. Parents who are anxious to get their kids back into crowded classrooms are regularly criticized, or even vilified.
Westerners were perpetually amused by news footage depicting hundreds of thousands of Chinese commuting to and from work wearing surgical masks. This ethnocentric delight was quickly replaced with widespread alarm once N95 masks were needed by many and none could be found.
Americans quickly learned that high-end brands such as Louis Vuitton, Gucci, and Fendi have been producing stylish face masks for years. These retailers were simply selling them far, far away, in Eastern cities with high population densities. They didn't ignore us in the process; we ignored them.
Improvise, Adapt, Overcome
As if taking orders from Clint Eastwood, Master Sergeant Gunny Highway in Heartbreak Ridge, Americans improvised, adapted and overcame.
The more resourceful citizens, during the spontaneous self-quarantine, blew the dust off of sewing machines they didn't even know they owned. These S-Class survivalists downloaded face mask sewing templates, scared up cotton fabric, and got to work piecing together protective face gear.
Other equally resourceful, but slightly less skilled, folks tied silk scarves and paisley bandanas around their faces and filled plastic squirt bottles with grain alcohol. Times got tough. Purell and all other traditional forms of hand sanitizer, if any could be located, was selling for exorbitant prices akin to Levi's jeans on the Soviet black market in the 1980's.
A few scalawags exploited the needs of the many to turn a quick buck, but the majority pooled their resources. Neighbors shared supplies, outright strangers did what they could for one another, and petty differences were set aside.
It was exhilarating to see who rose to meet the new challenges and who shied away.
Stock Market Bruised, Not Broken
As was expected, the public markets exhibited just a bit of volatility.
The DJIA hit a record high of 29,568 on February 12, 2020 “ again, the same day this article was originally published. Over the proceeding 40 days, the index shed an unimaginable 11,355 points, an astonishing 38% drop.
Generation Z got their very own Black Monday, one that will not be soon forgotten.
Fortunately, March 23, 2020 seems to have been the bottom. Currently, the DJIA has leveled out north of a very respectable 25,000, about 18% off of its record high, but not even close to the economic Armageddon investors feared would occur.
Let's keep in mind that there are still six months to go until the end of the year. We may still pull out a winner. Anything is possible.
It was heartening to see how fast and how well everyone could work together to avert an outright catastrophe. Americans most definitely enjoy the highest standard of living in the world, but that does not mean we are soft or complacent. Our organized response to the COVID-19 outbreak has demonstrated to the world that we still have the grit and tenacity to do what needs to be done and the ability to do it well.
We may not be out of the woods just yet, but we now know if and when we get hit by another curveball “ viral, economic or otherwise “ we'll make the best of it and ultimately come through the other side.
About the Author
Laura Anthony, Esq. is the founding partner of Anthony, L.G., PLLC, a national corporate, securities and business transactions law firm. For more than two decades Ms. Anthony has focused her law practice on small and mid-cap private and public companies, capital markets, NASDAQ, NYSE American, the OTC markets, going public transactions, mergers and acquisitions, registered public and exempt private offerings and corporate finance transactions, Regulation A/A+, securities token offerings, Exchange Act and other regulatory reporting requirements, FINRA requirements, state and federal securities laws, general corporate law and complex business transactions. The Anthony, L.G. PLLC team has represented issuers, buyers, sellers, underwriters, placement agents, investors, and shareholders in mergers, acquisitions and corporate finance transactions valued in excess of $1 billion. ALG has represented in excess of 200 companies in reverse merger, initial public offering and direct public offering transactions. Palm Beach Attorney Laura Anthony is also the creator and author of SecuritiesLawBlog.com, the host of LawCast„¢, Corporate Finance in Focus and a contributor to The Huffington Post and Law360.
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