Coronavirus Tests Market's Faith in the Global Economy
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. It's been a roller coaster of a week on Wall Street. U.S. markets suffered a broad sell-off on Monday, sparked by fears of how the new coronavirus spreading in China will affect global economies.
How did global markets react to the initial news of the coronavirus outbreak?
The market recovered somewhat on Tuesday, but where does it go from here?
Now we're getting analysts suggesting that if the viral outbreak isn't contained in the first couple of months of the year, we could see GDP take a hit there.
That's Wall Street Journal markets reporter Akane Otani. She'll discuss the possible economic impact of the virus and how markets fared after past epidemics. That's next.
The coronavirus has elicited a massive response in China as the number of cases continues to rise.
Why did investors experience volatility and 'whiplash' during the week?
Major manufacturing cities are on lockdown, travel's been restricted, and investors are keeping a close eye on all of it, trying to judge how the disease will affect global economies. And that's made for a volatile few days in the markets, which opened the week with a steep decline before stabilizing on Tuesday. Wall Street Journal markets reporter Akani Ohtani is here to discuss what we should expect as the situation unfolds. So, Akani, the fears over the coronavirus have sent U.S. markets into whiplash this week. This is something that investors are very concerned about.
It's because we've already seen stock markets around the world start the year on a pretty strong note. So people had been saying before this virus outbreak actually even began that maybe the markets were sort of due for some kind of pullback. And now that we see that the virus is spreading beyond China to several other countries, the number of cases is rising, it really introduces this element of uncertainty where people don't know yet just how serious it's going to get. and how much of a toll it could take on economic growth.
Markets do not like more questions than answers about anything.
especially at this point in the bull market.
How could the coronavirus outbreak affect China’s GDP and global growth?
I mean, we are in the middle of a year where investors were largely expecting kind of middling returns from the markets, nothing too spectacular. And that was all sort of resting on this assumption that global growth was going to pick up modestly in the first half. And now we have this virus outbreak that threatens to sort of cut into that assumption a bit.
And the wrinkle here is that this virus and the spread of it is impacting China's economy, which already was showing signs of weakness.
At the beginning of the month, we did see data from the Chinese government showing that the economy grew in 2019 at the slowest pace in nearly three decades. And now we're getting analysts suggesting that if the viral outbreak isn't contained in the first couple of months of the year, we could see GDP take a hit there. So that is quite concerning since China is such a major driver of global economic growth.
Now, every disease outbreak is different, and there have been several over the past 20, 25 years. And the way Wall Street has handled past pandemics, it tells an interesting story.
It sort of differs from outbreak to outbreak, but it looks like for the most part, even when we do see a short-term disruption to markets due to fears about a pullback in consumer spending, pullback in growth... Over the long haul, markets seem to be pretty resilient. There was this Charles Schwab study that showed that over 13 outbreaks since 1981, the MSCI World Index returned an average of 0.8% in a one-month period and 7.1% over six months after an outbreak.
What historical evidence shows how markets respond to past epidemics?
So it pretty much tells you that markets do tend to shrug these things off.
And even the SARS outbreak in 2003 has significant economic impact in China and in Asia. And the markets recovered after that.
Yeah. So it tells you that even when things seem very dire and there is, of course, real human cost and human suffering, economic growth tends to be more resilient than we do think. And that's reflected in the bounce back that we tend to see in the markets.
But if there's any indicator that economists and investors will look at, it's the first sign of consumer spending really taking a hit as a result of this.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:20
2
How did global markets react to the initial news of the coronavirus outbreak?
0:20–0:58
3
Why did investors experience volatility and 'whiplash' during the week?
0:58–2:08
4
How could the coronavirus outbreak affect China’s GDP and global growth?
2:08–3:45
5
What historical evidence shows how markets respond to past epidemics?
3:45–4:28
6
Which economic indicators should investors watch for signs of a lasting impact?
4:28–4:44
7
What’s the outlook for market resilience and recovery after disease outbreaks?
4:44–4:49
Speakers
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