Less Information Is Better for the Market

The Spanish flu was the third deadliest pandemic in history, trailing only the plagues of the sixth and fourteenth centuries. At the peak of the influenza, much of the nation’s resources were simultaneously being directed toward the war effort in Europe. Under these conditions, the U.S. economy contracted, and GDP dipped. However, the evidence suggests that the payment system and financial services industry weathered the pandemic well. Restricted flow of information was bullish for the stock market:

Most financial markets remained open during the crisis. In fact, stock prices and volumes on the New York Stock Exchange were surprisingly unaffected by the pandemic. By the end of 1918, the Dow Jones Industrial Average was up 10.5 percent for the year and continued its upward climb, experiencing a 30 percent post-war rally in early 1919.The Dow also reached its high for 1918 in mid-October, when the pandemic was at its peak. Furthermore, trading volume on the NYSE showed an upward trend during the height of the epidemic. Cooper and Grinder offer three primary reasons why the market was not affected. They suggest press censorship kept investors from knowing the extent of the epidemic, news about the war overwhelmed influenza news, and government officials downplayed the severity of the disease to the public. The lack of immediate public awareness to the pandemic’s severity and the impact of World War I are two factors that may have diminished the effects of the pandemic on the financial markets.

Influenza and the Financial Services Industry: A Case Study of the 1918 Spanish Flu by Andrew Kish,Timothy Mochan, and Todd Vermilyea, Federal Reserve Bank of Philadelphia

Comments

[Old Trader:]

If the points made in this article are valid, (and I have no reason to think they're not), should there be another pandemic, things WILL be "different, this time", given the much freer flow of information. The SARS epidemic a few years back, did have an effect on markets (although primarily the Asian ones).

Jul 26 10:50 AM