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Impact of Virus Outbreaks: S&P 500, Gold, Oil and Currency Analysis

Impact of Virus Outbreaks: S&P 500, Gold, Oil and Currency Analysis

2020-01-31 19:30:00
Justin McQueen, Analyst

S&P 500, Gold, Crude Oil & Forex Analysis

  • Coronavirus Has Rattled Global Financial Markets
  • S&P 500 Typically Sees a Limited Impact from Virus Outbreaks
  • AUD, NZD & CAD Outperformed During SARS, However, Macro Trends Matters
  • Gold Rises on Virus Outbreaks, Oil Slumps

The outbreak of the Wuhan Coronavirus has rattled financial markets across the globe, although much is unknown as to whether the outbreak will expand to a pandemic and what the size of the impact will be.

In order to gauge the potential impact of coronavirus, this article will compare previous virus outbreaks and trends across the S&P 500, major commodities and currencies.

With that said, we are cognizant to the fact that China is more connected to the global economy, contributing a growing proportion to world GDP (~20%) compared to 2002-03 (~5%) when SARS broke out. Furthermore, the mortality rate of the Coronavirus is materially lower than SARS at 2-3% vs 9.6%, which has eased concerns.

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However, it is quite clear that there are increasing concerns about Coronavirus as it continues to spread, and this is reflected in the chart below. The data shows that the rising number of searches in Google is at its highest on record, surpassing the peak in 2009.

Impact of Virus Outbreaks: S&P 500, Gold, Oil and Currency Analysis

How Past Virus Outbreaks Have Impacted the Financial Markets


Across equity markets, S&P 500 generally performed better against its counterparts during virus outbreaks, while the DAX 30 had been the most negatively impacted during the SARS outbreak. However, despite equity markets initially coming under pressure, weakness was typically temporary with global equity markets showing a sharp recovery. Alongside this, the most adversely effected stock markets tended to show the strongest rebound.

Figure 1: Despite Falling 12%, the S&P 500 Outperformed its Counterparts

Impact of SARS on S&P 500

Figure 2: US Equities Tend to Weather the Storm During Virus Outbreaks

Virus Outbreaks and Coronavirus Impact on S&P 500

Figure 3: Hang Seng Dropped 15% After Human-to-Human Transmission Confirmation

Impact of SARS on Hang Seng

Figure 4: Virus Outbreaks Have Typically Had a Limited Impact on the Hang Seng

Hang Seng Reaction to Coronavirus and Previous Outbreaks

Figure 5: Max Drawdown of 20-25% in the DAX During SARS Outbreak

DAX Impact from SARS

Figure 6: SARS Had Most Damaging Impact on the DAX

DAX Reponse to Coronavirus and Virus Outbreaks

*0=First outbreak of virus


During the SARS outbreak, the spillover onto G10 currencies had been limited at best as the larger focus for investors had been on the global macro backdrop. This had been the global reflationary story as economies came out of the recession that took place in the early 2000s.

As such, given that the global economy had been early in the economic cycle, notable outperformance had been observed in the AUD, CAD and NZD during the SARS episode (macro backdrop matters). Subsequently, this also helps explain the modest gains in the Euro and Pound, while the US Dollar had been under pressure. Similarly, safe-haven currencies (JPY, CHF) saw little in the way of notable movement during the outbreak.

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A better assessment of the SARS impact would be to look at local currencies. Asian FX pairs had notably weakened against the greenback with the Philippine Peso and South Korean Won the most negatively impacted.

With that said, with previous virus outbreaks (SARS) suggesting that the macro backdrop matters, then the fact that uncertainty remains over potential economic vulnerabilities, commodity linked currencies that have previously outperformed its counterparts could instead be among the underperformers.

Figure 7: Modest Weakness in the US Dollar During the SARS Outbreak

US Dollar Underperformed During SARS Outbreak

Figure 8: Asian FX Notably Impact from SARS: PHP and KRW Most Negatively Effected

Philippine Peso and Korean Won Underperformed During SARS Outbreak

Figure 9: Safe-havens Drifted Higher Against the Greenback

Impact of Virus Outbreaks: S&P 500, Gold, Oil and Currency Analysis

Figure 10: AUD, NZD, & CAD Saw Little Impact from SARS… Reflation Trends the Main Driver

Australian Dollar and Canadian Rose During SARS

*Charts are rebased from September 1st, 2002 = 100


Gold prices typically rise during virus outbreaks with SARS having had the largest impact on the precious metal, which rose as much as 18% in the first three months following the outbreak. Elsewhere, oil prices have seen a larger drop in response to the Coronavirus than has previously been the case.

Figure 11: Gold Rose Around 15-20% Amid SARS Outbreak

Impact of Virus Outbreaks: S&P 500, Gold, Oil and Currency Analysis

Figure 12: Gold Has Typically Been Underpinned from Virus Outbreaks

Impact of Virus Outbreaks: S&P 500, Gold, Oil and Currency Analysis

Figure 13: US-Iraq War Reduces Ability to Assess SARS Impact

Oil Impact from SARS

Figure 14: Oil Prices Have Seen a Larger Drop from Coronavirus Than Historically

Crude Oil Prices Plunge in Response to Coronavirus
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--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

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