- Much of Wall Street has turned to historical data from SARS to get a grip on what coronavirus could have in store for markets.
- But the US stock market was dealing with an impending war and weak economic fundamentals in 2003, making that a faulty comparison, RBC Capital Markets analyst Tom Porcelli says.
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In the scramble to predict the potential US market fallout of coronavirus, much of Wall Street has turned to the 2003 SARS epidemic in China as a benchmark for comparison. But those comparisons are “useless,” according to RBC Capital Markets analyst Tom Porcelli. “Looking to the SARS epidemic for guidance is, in our view, amongst the most misguided approaches,” he said in a Monday note. After a US equities selloff many attribute to coronavirus fears, interest in the SARS epidemic has peaked: Searches for SARS on Google spiked to 100, Google Trends shows, the highest possible rating on the gauge. Major banks and research houses in the past week have analysed market data from the 2003 SARS epidemic as they rush to get a grip on the market impact of Wuhan virus. But a few macroeconomic factors make SARS a faulty comparison, Porcelli said. For one, economic fundamentals in the US were weak during the period SARS was spreading in China: US consumer confidence was falling, jobless claims were up, and non-farm payroll numbers were in the red, Porcelli noted. With economic data strong today, “the fundamental backdrop could not be more different,” he said. The Iraq War was also ramping up at the same time as the SARS outbreak, Porcelli said – Congress authorised the use of military force in Iraq a month before the first outbreak of SARS, at which time the market had already been tumbling, he noted. The war began a week after the World Health Organisation declared a global alert for the viral disease, after which point the market began a steep recovery, he said. This makes it impossible to “disentangle the market reaction to the build-up and start of the Iraq War from that of SARS,” he said. The Federal Reserve also did not address SARS in notable measure until after the virus had been contained, Porcelli noted. “Alas, expect Powell to be grilled on the Coronavirus implications on Wednesday,” Porcelli said, adding that those implications should be limited: “we think it takes a severe decline in financial conditions (a function of a protracted equity market selloff) to alter the Fed’s very strong on-hold bias.” The Dow pointed up Tuesday morning, reversing downward momentum it started the week with. Monday, it fell 1.6%, its worst performance since October, CNBC reported.
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