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Comparing the Stock Market With Past Outbreaks – Faulty Information

There is a great deal of information that is floating around concerning today’s events that is flat out wrong or misinterpreted. Much of this information is coming from Wall Street. After all, calm investors are much better than panicked investors.


Mutual fund companies send out what I call “hand-holding pieces” to make investors feel better about losing money. Even in the most panicked of times or in times of crisis, you will be hard-pressed to find anything negative in these pieces. American Funds flood social media with these kinds of pieces. Their latest one, 4 Ways to Stay Calm When Markets Stumble, compares past outbreaks to the current one showing the market will be just fine.


Here is what they have to say:


Place current events in historical perspective


Keeping a long-term perspective is always essential, but it’s necessary when markets are stormy and emotions running high. A look at history shows that while markets react to news events in the short term, they have tended to reward patient investors over long periods.

Indeed, global markets have shrugged off the impact of past viral outbreaks. While the past is not predictive of the future, it does offer a valuable perspective.


The reality of Comparing the Past with the Present


So if you take a look at the chart, it appears that regardless of the outbreak, the markets always went up. So, that is reassuring. Right? Let me put it into context. There are three points you need to know about comparing today’s outbreak to the past and the effect on the market.


The only outbreak that even comes close to being a fair comparison is the Swine Flu

The rest of the explosions they plot on that chart don’t even compare numbers-wise. The Swine Flu infected 61 million people in the US, with 12,469 deaths.


The economy in 2009 was much different than the economy in 2020


When the Swine Flu outbreak occurred, we were coming out of the throes of a financial crisis. The economy was broken. The government was bailing everyone out and aggressively saving the system. The economy was already bad in 2009. Plus, the stock market had already been through the second-worst bear market on record and was in the beginnings of a recovery period.


The World Didn’t Start to Shut Down threatening Economic Growth and Normal Ways of Life


The new buzz words are social distancing and self-quarantined. There is a panic that you didn’t see in 2009. That sense of fear should grow along with the number of new cases and deaths. Conferences and events of all kinds are being canceled. Cities and states are taking big hits to their already weak budgets. Consumer behavior is starting to shift. Remember, consumer spending makes up 2/3rds of economic growth. That, of course, affects the stock market.


I agree with the handling of holding pieces – stay calm. I would add these three points.


  • Stay calm – don’t make emotional/panicked decisions

  • Know the risk level of your investments

  • Be at peace with that risk level


If you have any questions of me about your investments, I can always be reached at bob@prudentmoney.com