Historically, Pandemics Wreak Less Market Havoc Than Feared

Apr.30.09 | About: SPDR Dow (DIA)

Investors are wondering what impact, if any, a major global influenza pandemic might have on the US stock market in 2009-10. Looking more closely at the DJIA price movement during the lesser influenza pandemic of 1968-69 and "Swine Flu Scare" of 1976, it's not at all certain that influenza epidemics must move the market negatively.

The Hong Kong Influenza of 1968-69


Beyond the expected annual flu mortality, the 1968-69 pandemic caused an estimated extra 33,800 US deaths, which was far larger than expected at the time. The normal range of US flu-deaths is currently between 20,000 and 55,000; an average estimated 36,000 Americans die annually from flu-related causes (0.1%). Adjusted simply for US population growth, an equivalent number of additional influenza deaths for 2009-10 would be more than 65,000, although that doesn't factor in radical advances in health care and life-expectancy. If mortality rates are similar to the 1968-69 Pandemic, we might conservatively anticipate between 45,000 - 90,000 additional influenza deaths will occur.

According to the CDC, a 'medium level' influenza pandemic could kill 90,000 - 210,000 US residents.

Al ot more die from 'the flu' than most people would assume. In 2006, the estimated number of US deaths from Influenza and Pneumonia was over 56,000. In 2008, the number of deaths complicated by influenza probably exceeded 60,000. Normally, around 89% of flu-related mortalities are elderly.

The Hong Kong influenza virus (A/H3N2) arrived on the West Coast in June 1968. Although the dreaded Hong Kong Flu remained epidemic through April 1970, 70% of US deaths occurred in the middle of the first season (December), and more than 90% of Hong Kong Flu deaths were elderly. The mortality of the 1968/69 Flu season was much lower than the 1957 Pandemic, due to the timing, medical advances, etc.

The DJIA in 1968-69

The DJIA peaked 11/29/1968 at 985.08 and 5/14/1969 at 968.85. The Dow happened to be down only slightly (YTD -0.7%) by 9/3/1968, when Americans became ill with the HK strain. However, the market rose and fell within normal ranges (+9% > 4%) irrespective of flu season mortalities.

Sept 3 1968- Nov 29 1968 : DJIA +9.4% (Mkt Peak)
Sept 3 1968- Dec 31 1968 : DJIA +4.8% (1968 Fall Flu)
Sept 3 1968- April 30 1969 : DJIA +5.5% (1968-69 Flu Season)

Over time, the influenza epidemic of 1968-69 does not appear to have had any appreciable effect on the Market overall.


The Swine Flu Scare of 1976


In Republican 'mop-up' Administration that was characteristically bumbling & fumbling, the 'Swine Flu Scare' played no small part in the electoral defeat of Gerald Ford. In January 1976, a localized and contained outbreak of Swine Flu occurred at Fort Dix. This triggered a medical-research frenzy between 2/14/76 -10/11/76; poorly-tested & useless vaccines were forced on a distrustful public on Oct. 1, 1976. By the time the scientists' hysteria was finally discredited (mid-October 1976), dozen of American citizens had been killed or crippled from Guillain-Barré Syndrome, caused by Ford's ill-conceived National Influenza Immunization Program.


The DJIA during the 'Swine Flu Scare' of 1976


For the year, the DJIA peaked 9/21/1968 at 1014.79, several weeks before the invasive vaccinations ordered by President Gerald Ford.

Jan 1 1976 - Sep 21 1976 : DJIA +18.8% (1976 Mkt Peak)
Feb 13 1976 - Oct 1 1976 : DJIA +1.9% (Swine Flu Scare)
Mar 14 1976 - Oct 12 1976 : DJIA -5.6% (Ford's Swine Flu project)
Sep 21 1976 - Dec 16 1976 : DJIA -3.6% (Mkt Peak - end of Scare)
Oct 1 1976 - Dec 16 1976 : DJIA +0.1% (US Swine Flu vaccinations)
Dec 16 1976 - Dec 31 1976 : DJIA +2.6% (post-Swine Flu scare, 1976)
Jan 1 1976 - Dec 31 1976 : DJIA +17.0% (1976 Annual Return)

There was no swine flu nor any other pandemic in 1976, and deaths from influenza that season were among the lowest on record. The Swine Flu hysteria created by the Ford Administration coincided with the weakest period for the DJIA in an otherwise excellent year. During that election year, it's safe to assume that other factors were responsible for the market's gains.