People are collectively losing their minds over the coronavirus. The S&P 500 had its worst week since the 2008 financial crisis, falling 10%. Many reputable sources have resigned themselves to believing that the coronavirus will inevitably get worse. I’ve heard some sources say that all countries and everyone will be infected, so all 8 billion people will get the coronavirus, and 2-4% of individuals will die, making this the worst pandemic ever second to the Spanish Flu.
Let’s step back a bit.
When did this all begin?
The coronavirus first made news in late December and January, affecting parts of eastern and central China (specifically, the Wuhan region).
According to the John Hopkins coronavirus virus app, the number of cases in China has stabilized at 75k, a month after the epidemic began. This in and of itself is very good news and ignored by the media. The media is trying to spread a narrative that all of China will be affected.
Despite this surge in cases, the US stock markets mostly shrugged it off, until finally cracking last week. So what caused this sudden change of sentiment, especially given the stabilization of the virus in China?
Looking at the chart in the app, take note of the yellow plot. From Feb 22-29 saw a notable uptick in global cases, from 2.0k to 6.4k cases. This is what spooked the market and caused this media frenzy, not China. Cases began to appear all over the world, from as far as Africa, to the US, to Italy, and even a single case in South America. There are 64 cases in the US, mostly dotting the coast of California and along the Canadian border.
As the market began crashing , unlike others, I was not telling people to rush out to buy the dip or offering my prognostications about the virus. I didn’t have enough evidence/data to in order to offer a conclusion. But now I do.
Two major reasons why I’m not concerned:
The morality rate outside of China and other Asian countries is very low, around .5%, which is just slightly more than influenza. Like influenza, the elderly, the very young, and immune-deficient are at greatest risk. Although 56 countries are infected, outside of Korea, China, Iran, and Italy, the morality rate is almost nonexistent despite being hundreds of cases. France had 2 deaths, one of them a 60-year-old school teacher.
Second, and no one else has come up with this analysis, given that mainland China has a population of 1.4 billion yet the disease stabilized at just 75 thousand cases, means we can extrapolate that given a global population of 8 billion, that, at worst, China’s numbers will be magnified by 6x, so that means around 450,000 total cases and 17,500 deaths. Outside of China the morality rate will be much lower. So 370,000 non-China cases with a mortality rate of 1% gives just 3,700 deaths, which is way fewer deaths than the influenza but a higher morality rate (although there are not enough cases outside of China to know with a high degree of confidence, but preliminary data is reason to be optimistic). This is not that bad. By comparison, 40 million people worldwide are living with HIV, and in 2018 there were 700,000 deaths. This 450,000 figure is the absolute worse case. Given all the preventative measures being taken, this will likely be lower. Maybe 150,000 total cases worldwide , including China, when this is all over.
The US stock market will recover quickly, so I recommend buying the dip.