Everyone's talking about the coronavirus outbreak, but nobody is talking about one news report that threatens to crush the stock market.
Over the past week, Wuhan’s Huanan Seafood Market has gained infamy as the source of the world’s deadly coronavirus outbreak. But the Chinese market appears to have been falsely labeled— a problem that not only sets containment efforts back significantly but will likely extend the stock market’s decline.
So where do we go from here?
History says stocks will continue lower until at least the end of March, but some analysts say now could be an excellent time to make some strategic stock picks to profit from the market’s jitters.
Perhaps the biggest news to come out this weekend (that no one seems to be talking about) is the fact that the seafood market in Wuhan probably wasn’t where coronavirus began.
What’s worse, it appears that Chinese officials knew that when they confirmed that the market was the source.
On Friday, a description of the first 41 cases of coronavirus was published in The Lancet. The data show that the very first patient was ill on December 1 and had no link to the Wuhan market at all. In fact, 13 of the 41 cases described didn’t have any contact with the supposed source of the outbreak.
Daniel Lucey, a specialist in infectious diseases at the University of Georgetown, says the fact that roughly one-third of the coronavirus cases didn’t come from the Wuhan market is troubling.
Lucey said the data show that Chinese health officials would have known the case history for each of these 41 cases by January 10. That means they were aware that the market was likely not the source of the epidemic more than two weeks ago.
That’s incredibly problematic for containment efforts— especially since new research shows that the disease could be transmitted from person to person before any symptoms become apparent.
Evidence suggests that the disease may have an incubation period of up to two weeks— meaning many people could be carrying and spreading the virus unknowingly for quite some time.
Financial markets have taken a downward turn in the wake of the coronavirus outbreak as traders become nervous about a world-wide epidemic.
So far, just 29 cases of coronavirus have been reported outside of China, and 26 of those people visited Wuhan.
In China, the number of confirmed cases has skyrocketed to 2,744. Coronavirus is also responsible for 81 deaths in China.
Infectious disease outbreaks tend to roil the stock market and send share prices significantly lower, but the losses are typically temporary. The SARS outbreak back in 2002 saw the stock market fall for three months before moving back to its previous position over the next quarter.
To be clear, coronavirus isn’t as severe as SARS was— at least not yet.
But news that the disease has a long incubation period and can be spread before symptoms are apparent suggests the situation will likely worsen before it gets better. The fact that the Wuhan seafood market probably isn’t the only place containment efforts should be centered is another reason the outbreak could get worse over the next few months.
So investors should be buckling up for a bumpy ride.
If coronavirus impacts markets in the same way that SARS did, we can expect the S&P 500 and the Dow to make their way back to the sky-high levels we saw at the beginning of the year in July at the earliest.
Four months later, the U.S. will elect its president in what is shaping up to be one of the most contentious elections in history. Not to mention the impact of ongoing impeachment proceedings.
The bottom line is that the coronavirus has the potential to kick off a larger stock market crash. If the outbreak worsens, investors can expect six months of volatility at a minimum.
But if you’re prepared, a stock market crash may not be the worst thing in the world. Instead, it offers an excellent buying opportunity once valuations come back down to earth.
Despite worries about the coronavirus outbreak worsening, experts agree that pulling out of the stock market entirely is the wrong move. Instead, shoring up your portfolio and keeping some powder dry as prices fall is the way to go.
Jennifer Marcontell, an advisor for Edward Jones, says energy stocks are a good sector to place long-term positions. She says investors can find yields of 4% or more at transport and storage companies. But integrated oil companies are often the best bets because of their widely diversified portfolios.
Exxon Mobil (NYSE:XOM) and Chevron Corporation (NYSE:CVX) – which both offer dividend yields of 5.3% – are two worthwhile integrated oil picks whose share prices have slipped as oil prices lost momentum.
Novavax (NASDAQ:NVAX), Lakeland Industries (NASDAQ:LAKE), and Alpha Pro Tech (NYSE:APT) saw their share prices rise 71%, 25%, and 31%, respectively, in the wake of the coronavirus outbreak.
If you got in on that rally, history suggests you might want to get out quickly. In the case of SARS, healthcare stocks that surged immediately after the outbreak gave up those gains in a matter of weeks.
Uncertainty is driving the stock market right now, and investors would be wise to exercise caution.
New information suggests that the coronavirus epidemic is far from over, and there’s no indication of how much further it will spread.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. As of writing, Laura Hoy was long XOM.
This article was edited by Josiah Wilmoth.
Last modified: January 30, 2020 8:42 PM UTC