Stock markets across the globe have declined by double digits in the last week as investors brace for the economic impact caused by efforts to contain the novel coronavirus outbreak. Shuttered factories, deserted transportation centers, closed schools, and government lockdowns will likely have a chilling effect on industrial output, consumer spending, and general economic productivity.

There's growing concern that cases and clusters of cases of the novel coronavirus, called SARS-CoV-2, could eventually force the World Health Organization (WHO) to begin referring to the situation as a global pandemic. Whether or not the dreaded term is applied, panic isn't going to help. 

Encouragingly, the first real analysis of cases provide reasons for calm among concerned investors and individuals.

An individual having a discussion with a doctor.

Image source: Getty Images.

Can a huge analysis and mathematical models calm markets?

The coronavirus strain SARS-CoV-2 causes a respiratory illness named COVID-19. A paper published in JAMA evaluated over 72,000 confirmed and suspected cases in China through Feb. 11. The researchers made the following observations among the more than 44,000 confirmed cases at the time: 

  • Individuals aged 30 years and older comprised 90% of all confirmed cases. Individuals under the age of 20 comprised only 2% of confirmed cases.
  • Roughly 81% of all confirmed cases were mild, 14% were severe, and only 5% were critical.
  • No deaths were reported among mild or severe cases, which comprised 95% of total confirmed cases. 
  • All deaths were reported among critical cases, which comprised only 5% of total confirmed cases.
  • The confirmed case fatality rate was 2.3%, meaning 23 of every 1,000 individuals with a laboratory-confirmed case died.
  • No deaths were reported in individuals aged 9 years and younger.
  • The critical case rate and case fatality rate were strongly correlated with age. Individuals aged 10 years to 39 years had a case fatality rate of only 0.2%. The case fatality rate increased for individuals with confirmed cases in their 40s (0.4%), 50s (1.3%), 60s (3.6%), 70s (8%), and 80s (14.8%). 
  • The analysis found 51% of all deaths occurred in individuals aged 70 years and older, who comprised only 12% of all confirmed cases.
  • The critical case rate and case fatality rate were strongly correlated with co-morbidities. Individuals with COVID-19 and cardiovascular disease had a 10.5% fatality rate, while diabetes (7.3%), chronic respiratory disease (6.3%), hypertension (6%), and cancer (5.6%) were also associated with increased lethality.

It's important to note that the numbers presented above were calculated from confirmed cases. The number of total cases is higher, as individuals with asymptomatic cases (but who are still carriers) or who think they have other mild illnesses and never go to a doctor (influenza and colds, both of which also cause respiratory illnesses, are also circulating in the Northern Hemisphere right now) aren't reflected in official tallies. Therefore, the actual fatality rates for each patient population are likely much lower than the confirmed fatality rates reported above.

For example, as of Feb. 28, the confirmed fatality rate in Hubei province in China (where 79% of global cases reside) is 4%. It's just 0.8% in the rest of China and 1.4% outside of China. The divergence of these numbers makes little scientific sense or suggests a lot of context and nuance is missing from the discussion, which exactly highlights the problem with extrapolating early and limited information. 

In fact, the WHO has supported multiple groups developing mathematical models that can be used to plan against, respond to, and contain regional outbreaks of COVID-19. The models predict the overall fatality rate is between 0.3% and 1%, with the most refined model providing a figure of 0.94%. Even that number could be an overestimate.

Investors and individuals should keep that in mind and remain objective when filtering information. For example, recent reports in The New York Times and STAT claim the COVID-19 outbreak could have a fatality rate similar to the 1918 Influenza Pandemic. That's simply not true. The 1918 Influenza Pandemic had an estimated fatality rate of nearly 10% (it had a mortality rate of 2.5%) and was unusual in that it killed many healthy, young individuals. No evidence suggests COVID-19 is nearly as lethal overall or burdensome on young, healthy individuals. 

Most comparisons to seasonal influenza are also inaccurate. The U.S. Centers for Disease Control and Prevention (CDC) estimates the seasonal flu has a fatality rate of 0.1% domestically (with up to 85% of deaths occurring in those aged 65 years and older), but this includes estimates of asymptomatic cases and unconfirmed cases. The currently available numbers for COVID-19 only include confirmed cases. Evidence strongly suggests SARS-CoV-2 is deadlier than most seasonal influenza strains, but apples-to-apples comparisons between the lethality of the two cannot be made at this time. 

A scientist looking through a microscope.

Image source: Getty Images.

What it means for investors

The emerging numbers suggest two things. First, the biggest impact is likely to be felt economically.

Efforts to contain regional and local outbreaks of SARS-CoV-2 have the potential to significantly blunt economic activity and cause ripple effects in our globalized economy. Automakers, consumer goods companies, and tech giants have all told shareholders to brace for impact. Moody's estimates the situation will cause a recession in the U.S. and globally in 2020. 

Second, investors stampeding into pharma stocks might be sorely disappointed in the end. It might take up to one year to develop a successful vaccine (although recent advances in biotechnology could surprise industry watchers). Then the vaccine has to be manufactured, distributed, and administered. 

If the numbers now coming into focus suggest COVID-19 is less severe than initially feared, then how much more might we know in 12 months? If a vaccine is successfully developed and health authorities agree to divert limited supplies to the most strained healthcare systems, such as those in developing countries, then what financial impact can investors realistically expect? 

The answers to these questions carry significant weight considering most companies in the discussion have no track record of success and have experienced significant gains since the beginning of 2020.   


Technology Platform

Operating Income, 2019

Market Cap Gain (% Gain), 2020

Moderna (MRNA -1.69%) 

mRNA vaccines

($545 million)

$1.9 billion (29%)

Vir Biotechnology (VIR -1.15%)

Monoclonal antibodies

($114 million)*

$3.9 billion (280%)

Novavax (NVAX -5.11%)

Recombinant protein vaccines

($92 million)*

$365 million (279%)

Inovio Pharmaceuticals (INO -0.32%)

DNA vaccines

($81 million)*

$100 million (29%)

Data source: SEC filings, Ycharts, press releases. * = first nine months of 2019.

One or more of these companies (or more established vaccine developers, such as Gilead Sciences or Sanofi) could develop a successful vaccine or treatment for SARS-CoV-2, but the financial impact might disappoint investors. 

Pandemic or not, investors should remain calm

Encouraging analyses and mathematical models suggest the overall health impacts will not be nearly as severe as initially feared. An estimated 95% of confirmed cases in China through mid-February were mild or severe, but no deaths occurred in those cases. Most deaths occurred in those aged 70 years and older and in infected individuals with existing health conditions, not unlike other virally induced respiratory illnesses.

Even if emerging analyses suggest the health impact of COVID-19 will be much less severe than a worst-case scenario, the economic impact could still be severe as countries move to contain outbreaks. Meanwhile, many of the companies developing vaccines or treatments haven't commercialized a drug product to date and are losing significant sums of money. It might be best to avoid making bold bets on unproven technology platforms. 

Taking a broader view, the U.S. stock market was trading at a historic premium before concerns about COVID-19 took hold. Therefore, although almost no one suggested a potential pandemic as the tipping point for an inevitable correction, it's really not that surprising that a correction is taking place. If a recession occurs, then the global economy will do what it always does with time: bounce back and return to growth.