Here's some perspective on U.S. stock market reactions to bad news (of nonfinancial origins):

  • 1918 Spanish Flu: -10% in slightly over 5 weeks?
  • 1940 Fall of France: -25% in slightly over 2 weeks
  • 1942 Pearl Harbor: -11% in slightly over 3 weeks
  • 2001 9/11: -12% in less than 2 weeks
  • 2020 COVID-19: -26% in 3 weeks (so far?)

These numbers are based on closing values for the S&P500 (for 1918: the DJIA), from the day before the obvious start of the crash, to an obvious low point where it stabilized. Note that the reaction to the 1918 flu is confusing, maybe because WW1 ended just as the biggest wave of the flu ended. The big increase in death rates in New York started around October 1, and peaked in late October. Yet the DJIA was higher in late October than on October 1. I've calculated the decline from the October 18 peak to the November 25 low, but I don't think it took that long to finish reacting to the flu.

My intuition is that COVID-19 will cause no more harm than 9/11 or the 1918 flu. Why does the market act like this is slightly worse news than the Nazi occupation of France? It's not due to problems that are specific to the U.S. - many European markets are doing worse.

Yet the Shanghai Composite is down less than 8% from it's January high, and is above its early February low.

Maybe the U.S. and European markets had reflected a much safer world than anyone at the time of prior disasters had expected?

>Maybe the U.S. and European markets had reflected a much safer world than anyone at the time of prior disasters had expected?

that's part of what super low rates/yield imply right? That people expect a very stable world. Higher multiples are flimsier in the face of new evidence.

5maia2moComplete speculation here: Our economy in 1918 was based much more on agriculture and industry, whereas now it is much more based on services, aka people going to work, which they now can't do, and also much larger. So perhaps the coronavirus will, in fact, destroy more real value than the Spanish flu was able to, even as a percentage of the market.
2FactorialCode2moThere are probably many factors that make this different now than before. However, I suspect that markets today are just smarter than back then. As a result, they react much quicker to information than before. I don't think you can estimate the drop magnitude by the looking solely at the rate of decrease.

March Coronavirus Open Thread

by Elizabeth 1 min read8th Mar 2020377 comments


This thread was created on 3/8/2020, or approximately one million years ago in virus time. It’s getting pretty bloated now, and a lot of things that were high value at the time have been eclipsed by events, making karma not a very useful sorting tool. So I’m declaring this thread finished, and asking everyone to move over to the April Coronavirus Open Thread.

Interested in what happened in this thread? Here’s the timeless or not-yet-eclipsed highlights:

  • Scott Alexander comes up with Hammer and Dance 6 days before Tomas Pueyo
  • Spiracular on why SARS-Cov-2 is unlikely to be lab-created.
  • Two documents collating estimates of basic epidemiological parameters, in response to this thread
  • Discussion on whether the tuberculosis vaccine provides protection against COVID-19.
  • Suggestive evidence that COVID-19 removes sense of taste and smell.
  • Could copper tape be net harmful?