Stock Investors Confront a Coronavirus Catch-22
If the worst fears are realized, cheap money won’t help; if the disease is contained, money will have to get more expensive.
Medical disaster or cheap money? You can have both or neither.
Photographer: Spencer Platt/Getty Images
Fear is back in markets, but not as yet, complete irrationality. Stocks declared Peak Fear from Covid-19, still at the time known as the novel coronavirus, at the end of January. The rate of acceleration of infections in China, the crucial metric, was slowing, and traders followed the template from previous comparable outbreaks, such as SARS in 2003, which saw swift market recoveries. We now know that the peak came too soon. By the end of Monday’s trading, the world’s largest stock market had returned almost exactly to where it had fallen on Jan. 31:
Where do we go from here? We lack the medical precedents to gauge how serious the epidemic will become. We do have some market precedents, though. And these suggest radically different outcomes depending on whether you look at U.S. markets in isolation, or take other asset classes into account. Neither viewpoint, however, suggests that there is anything like true panic or irrationality in the response so far.