In spring 2009, it wasn’t yet obvious to all that the major global bear market had bottomed in March. Stocks were on a massive tear—huge upward volatility—but maybe it was just a temporary bounce within a bigger bear market. That can happen and is hard to see with certainty when it does because at bear market bottoms and after, volatility is usually so huge and folks are so terrified, they can’t see a new bull market forming. And there is always much to fear.
Plus, there was a new threat forming—pigs. No, not PIIGS—Portugal, Ireland, Italy, Greece, and Spain. We wouldn’t worry about the PIIGS debts until 2010. In Spring 2009, it was actual pigs we feared—swine—and a flu strain folks feared would sicken us all, stop the economy, and generally doom the world via pandemic.
I can make light now because, quite obviously, while a very few folks did die tragically and more got sick (all of which is truly sad), the bigger threat to global well-being never materialized. But back in Spring 2009, the media speculated endlessly we were facing a terrible, deadly epidemic, on par with the 1957, 1968, or, worse still, the super-deadly 1918 flu pandemic. And with whole swaths of humanity sick or possibly dying, folks feared a major drag on the economy and the impact on stocks—particularly since we were already mired in a recession. Folks lined up for scarce vaccines, and wearing surgical masks became vogue for airline travelers.

No Fear of Swine (or Any Other) Flu

Even though then we didn’t know 2009’s swine flu would turn out to be, for most people, a milder form of the normal flu, I knew the flu would likely have zero impact on stocks. How? There are several ways to know. Either the pandemic occurs big or it doesn’t. Let’s look at both. Usually it doesn’t end big and you know intuitively that if that happens it is bullish, not bearish, by the rule that prior fear of a pending false factor is always bullish. And we often go through these scares that end up being, like swine flu, vastly less than feared. Either the threat of the scale of destruction is massively overstated or human ingenuity innovates drugs or a vaccine equal to the threat, or some combination thereof.
Example: 2003 saw us all scared silly of getting severe acute respiratory syndrome—SARS. Remember SARS? The outbreak originated in China. Tourists traveling home found themselves quarantined. Suddenly, folks who hadn’t pondered biology since ninth grade were babbling about corona viruses and were sure we were just days from global pandemic. In total, 8,422 people were sickened globally—908 died.1 Again, sad for all of them—a personal tragedy—but small on a global scale. (Said another way, you had a 1 in 7,375,930 chance of dying of SARS, and odds were about as good as being felled by a lightning strike in 2009.) An 11 percent death rate (of those sickened) is high, but since it turned out SARS didn’t transmit easily from person to person and those most at risk were chicken farmers, it was hardly the global whopper first feared. And in 2003, world stocks gained 33.1 percent.2 The prior fear of a false factor had instilled early pessimism that faded, leading to more optimism, which rippled over to help fuel further the demand for equities.
In 2005 and 2006, we had twin bird flu scares, with similar outcomes—few folks sickened, fewer died, and stocks rose strongly. And in 2009, stocks were gangbusters all while folks were calling their senators to demand vaccines. Folks might say the swine flu, SARS, and the bird flu scares failed to become major pandemics so none of this is proof epidemics can’t ding stocks.
Fair enough. So let’s consider a biggie! Fact: No modern epidemic can match the 1918 Spanish flu. A rigorously researched and excellent book, The Great Influenza (Viking, 2004) by John M. Barry, covers the massive and sudden impact of this deadly virus. Barry also writes about the tireless and innovative work of the early students and graduates of Johns Hopkins School of Medicine in combating that disease. (I’m proud my grampa was one of the very first graduates of that fine medical school and part of that phenomenon—the world leaned heavily on Hopkins and its grads to deal with the crisis.)
Records weren’t as reliable then as now, but it’s estimated 500 million or more people were infected worldwide. So, in a global population of about 1.6 billion then, about a third fell ill. Of them, 100 million (20 percent) died—more or less. Hard to know precisely because records were spotty even in developed nations, particularly at the pandemic’s apex, when doctors and nurses simply lay down next to their patients to die themselves. Municipalities stopped record-keeping. Anyone fortunate enough to avoid sickness didn’t dare report for work. But any way you count it, that was a whopper. And it wasn’t just America—it was a global whopper.
Reading Barry’s book gives you a glimpse of the massive scale. Entire remote villages in Arctic outposts were utterly decimated. Pacific islands, separated by hundreds of miles of oceans, were hit particularly hard, as were parts of Africa—folks in isolated communities lacked the antibodies that protected, somewhat, those in Europe and America.
Most alarming, the flu was deadliest to healthy adults—the working world. A healthy man in his mid-20s might have shown no symptoms in the morning and be dead before dark. Some of those afflicted turned black before dying, eerily reminiscent of the Plague—the Black Death. The world was paralyzed with fear. City streets were empty. Meetings of any kind were canceled. People wore masks if they had to leave their homes and wouldn’t speak to others in the faint hope of preventing the disease from spreading. The Spanish flu was a bird flu that mutated to an efficient killing machine. Bird flus are particularly deadly—a fresh mutation ensures that humans lack antibodies to squelch the virus.
Compare how deadly the Spanish flu was with more recent “pandemics.” Not even close! Viruses don’t have the ability to kill as many anymore—not for lack of trying—they mutate all the time to become better killers and do their best to kill as many as possible. That’s their job in nature. But our doctors and fine research brains are getting better, faster, and smarter than those inert killing machines. I’m guessing, as long as our dear governments don’t meddle too much in health care, that innovation continues as fast as ever.
Side note: If you wonder what health care would be like in a more socialized system, just consider how many drug and device innovations come out of America (most of them), and how many from places like the UK, France, and Canada (many, many fewer).
So in the face of all that legitimate death, illness, and a work-force that simply stopped, for a long time, showing up to work, how did stocks do? You would intuitively expect them to do terribly, but counterintuitively, they did pretty darn well. In 1918, the height of the pandemic, stocks rose 26 percent.3 The following year, they were up 21 percent.4 That tells you health scares don’t have the power to drive stocks down the way you might fear. So you don’t need to fear this myth.
Can a health scare coincide with a big stock fall, as it did in early 2009 before the massive market surge? Sure! But overall it wasn’t the swine flu making stocks fall so far. And certainly, flu fears can cause corrections and pullbacks, as bird flu did in 2005. But any silly thing can cause a correction—that’s the nature of a correction. They’re based on sentiment, not fundamentals, and typically are over as fast as they start as people realize their fears are silly.
So get your flu shot. I’m for that. But know when the next big health scare comes around—because there will be some periodically—that pandemics don’t spell doom for stocks.
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