facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog search brokercheck brokercheck

Stocks and pandemics (lessons from the Spanish Flu)

During these uncertain and volatile economic times, I will be sending you valuable financial insights and objective wisdom on wealth to help you navigate these unprecedented times.  It's why I started, Sound Investment Management, LLC, to provide an evidence-based approach that heeds decades of noble prize-winning economic research and the timeless principles of wealth management found in God's word.

In the coming weeks, each insight will dive into a different compelling topic and we'll analyze it for insights about money, life, and investing that I think you’re going to appreciate.  If you're not interested in receiving these updates, you can unsubscribe by clicking the link at the bottom of this email.

As we all know, the pandemic is here, and we’ve found ourselves in bear country without enough toilet paper.

When markets fall as rapidly as they have over the last several weeks and the country is in lockdown, it’s reasonable to be concerned about a situation that seems unprecedented.

What can we learn from history?

The last outbreak to achieve pandemic status was the H1N1 Swine flu, which hit U.S. soil in April 2009.1 You might hardly remember it because markets were on a tear after bottoming out in March 2009 and the outbreak barely registered on investors.

But, some say that COVID-19 is nothing like recent epidemics. 

So let’s take a look at one of history’s worst pandemics: The 1918 Spanish Flu. Nearly one-third of the world’s population contracted the disease and more than 50 million died in just 15 months.2

Despite the human toll, the Dow actually rose during the 1918 Spanish Flu pandemic.

Chart source: Source: MacroTrends, CDC, NIH, NBER

The Spanish Flu led to quarantines, labor shortages, and contributed to a short recession in the aftermath of WWI.3 But, while markets were extremely volatile during 1918, they returned to an upward trajectory by early 1919 before the pandemic was officially over.

In spite of the business interruptions, the Spanish Flu only caused an estimated 0.5% hit to annual GDP.4

History shows us that pandemics are not uncommon, and their effect on markets is typically short-lived.

Chart source: MacroTrends, CDC

Historically, pandemics have struck the U.S. regularly over the last 100 years. Though outbreaks sometimes precipitated or accompanied market declines, stocks typically regained ground quickly as the epidemic subsided.

The past can’t predict the future, but it’s a good reminder that pandemics are not the only driver of market movements. Economic fundamentals, business health, and future earnings all drive long-term market trends.

My goal isn't to downplay the seriousness of the outbreak. We are in the exponential growth period of the virus. However, markets are running on fear and uncertainty more than rational assessments of the future.

What should you do right now?

  1. Read God's Word and pray.  He is our refuge and strength.  Psalm 46:1
  2. Don’t buy or sell based on headlines. There’s a lot of fear, speculation, and uncertainty feeding market volatility.
  3. Focus on staying healthy and taking sensible precautions to keep yourself and your family safe, especially if you have loved ones who are at higher risk of complications from the virus.
  4. Show the people around you some extra kindness in these days of anxiety. Let’s be grateful and pray for the medical professionals on the front lines and the hard-working folks keeping stores stocked.
  5. Remember that we as a nation have been here before, and we have the resources we need to get through this.

We’re watching markets so you don’t have to.

When markets fall off a cliff and economic upheaval is on the horizon, professional advice is one of the best tools you can have to cut through the noise and make rational decisions.

My team and I are closely monitoring leading indicators, research releases, and market movements. If you need to just talk or to discuss your investment strategy, please reach out by phone to (888) 500-0375 or just reply to this email. I'm here for you and happy to talk.

Warmly,
David

David Carlson, CFP®, ChFC®, CKA®, MBA
President & Financial Advisor

Sound Investment Management, LLC
9870 Research Drive, Suite 209
Irvine, California 92618
www.soundinvest.us
o 888-500-0375
c 949-575-8990
david@soundinvest.us

Let’s chat! Book a time here
Connect with me on LinkedIn

P.S. If someone you care about is worrying about markets right now, please reach out and let me know. I’m leaving a few spots on my calendar open each week for folks who need professional advice right now. Just give the office a call at (888) 500-0375 and we’ll take care of them for you.

1https://www.cdc.gov/flu/pandemic-resources/2009-h1n1-pandemic.html

2https://www.smithsonianmag.com/history/journal-plague-year-180965222/

3https://www.smithsonianmag.com/history/how-1918-flu-pandemic-helped-advance-womens-rights-180968311/

4https://finance.yahoo.com/news/information-past-pandemics-learn-literature-222750122.html

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only. The Dow Jones Industrial Average index is a price-weighted average of 30 of the largest American publicly traded companies traded on the NYSE and NASDAQ. Indexes are not available for direct investment. The performance of the index excludes any taxes, fees and expenses.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Sound Investment Management, LLC is an Investment Adviser registered with the State of California and is authorized to provide advisory services in states where registered or exempt from registration. All views, expressions, and opinions included in this communication are subject to change.