New Coronavirus in China May Ignite a Big Stock Market Correction

• A mysterious respiratory disease is ripping through China and Asia.
• The last time a similar disease ravaged through the region, U.S. stocks suffered heavy losses.
• The new virus emerges at a time when the greatest human migration is underway.

A mysterious SARS-like disease is infecting hundreds of people in Asia. CNN reported that the respiratory virus is responsible for three deaths while sickening over 200 in China. People are starting to fear the possibility of a pandemic as the new coronavirus strain can be transmitted between humans.

Nearly two decades ago, a similar virus ripped through Asia and China. Severe acute respiratory syndrome infected 8,098 people; 774 of those who contracted the disease died. The virus caused global panic, which translated to losses in the U.S. stock market. A former Goldman Sachs analyst believes that a similar situation may unfold as a new SARS-like virus emerges.

SARS Dampened Economic Growth Between 2002 and 2003

SARS made headlines in late 2002 as the disease spread rapidly from China and 30 other countries and territories. Both the S&P 500 and the Dow Jones felt the wrath of the virus.

The spread of the disease hit travel industry stocks hard. Airlines, hotels and tourist destinations suffered losses as people scaled back on travelling. U.S. companies also acknowledged that SARS has impacted revenue. The disease curbed sales in China and Hong Kong and crippled company earnings.

SARS was eventually stopped in 2003 but not before wiping out $40 billion from the global economy. The U.S. suffered losses of over $7 billion.

At the height of the SARS epidemic, the U.S. stock market went into a corrective period. In November 2002, the S&P 500 was trading at 941.8. By March 2003, the S&P 500 nosedived to 788.9 for a drop of 16.2%.

It’s the same story for the Dow. The index tumbled by over 17% between November 2002 and March 2003.

History May Repeat Itself: Former Goldman Sachs Analyst

Today, Asia is bracing for the possibility of a SARS-like virus ravaging the continent. Will Meade, former Goldman Sachs employee, suggests that the new disease may spark a correction in the overbought stock market. The hedge fund manager wrote,

SARS virus caused a big correction in stocks in 2002. If the coronavirus spreads like SARS, watch out.

Mati Greenspan, founder of Quantum Economics, also thinks that the respiratory virus might negatively impact the U.S. stock market. He told CCN.com,

So far it seems pretty small to me but people seem to be taking it quite seriously. It seems to have affected Chinese travel stocks so far. If the virus continues to spread, then its effects may be felt elsewhere as well.

The bad news is that China is about to celebrate the Lunar New Year, which is the largest human migration in the world. This year, it is estimated that over 3 billion trips will be made to celebrate the occasion. There’s a huge possibility that this new virus can cause more damage than SARS considering that it can be transmitted from human to human. The disease also emerged at a time when millions are migrating close to the source.

On Monday, ZeroHedge reported that Dow futures along with Hong Kong’s Hang Seng were down after news erupted that the new coronavirus strain can be spread via human-to-human contact. The World Health Organization will have an emergency meeting on Jan. 22 to discuss how to manage the novel virus.

Disclaimer: The above should not be considered trading advice from CCN.com. The writer does not own any stocks in the S&P 500.