How Did The Stock Market Perform During The Spanish Flu of 1919 ?

Millions of Americans have lost their jobs as Covid-19 decimated the US economy almost overnight. The tiny invisible virus did more damage to the economy than even 9/11. The number of unemployed Americans is about 43 million. As the adverse effects of the Pandemic continues to impact every corner of the world’s largest and dynamic economy, the stock market seems to have recovered from the lows reached during the panic in March.

The S&P 500 down by just 8.57% on price basis year-to-date. Today the market soared on a positive new on the vaccine front. Sometimes it makes you wonder if the market is brushing aside the Pandemic itself like a minor flu or fever, While the talking heads and others tell us that the market is soaring because it can’t get any worse, vaccine tests are showing potential, US states and other countries are opening up and that is a huge positive, etc. In reality, markets are rising on thin volumes and vaccine for this disease is still one year or more away.

With that brief introduction, let’s turn our attention to how market may perform in a pandemic situation such as the current one. The last pandemic that devastated the globe is The Spanish Flu of 1919. Millions of people around the world were infected and millions died. While Covid-19 is unlikely to reach that levels, it is still important to study the Pandemic of 1919 and its impacts on the market.So far most of the countries have been hit by the first wave of Covid-19. However there are fears of a second wave if economies are opened up prematurely or people go back to living like normal.

An interesting article by Dr. Brian Taylor, in Investment Office analyzes the Spanish Flu and its impact on the US equity market. From the article:

The Spanish flu came in three waves as is illustrated in Figure 1.  The first wave, which made people notice the flu, occurred in July 1918.  The second and most deadly wave occurred in October 1918 and resulted in millions of deaths.  A final wave of the flu occurred in February 1919, and after that, the flu disappeared.  Either the virus mutated to a less lethal form or doctors got better at treating or preventing it.  Just as no one knows for sure exactly where the virus came from, no one knows why it disappeared.

Spanish flu

It is indeed scary that The Spanish Flu had not just one but three waves. Without the internet and other modern conveniences in those days life during the pandemic must have been miserable.

How did the US equity market perform during The Pandemic of 1919? The author provided the following explanation to this question:

However, the impact of the Spanish Flu on the stock market was minimal. If you look at the Dow Jones Industrial Average in 1918 and 1919, you can see that the stock market was relatively unaffected by any of the three waves of the Spanish flu. Of course, the Spanish flu occurred in 1918 while World War I was raging in Europe so the war had a larger impact on the stock market than the flu.  There were few if any global supply chains that the Spanish Flu could disrupt because the war made supply chains nonexistent. The second and worst wave of flu occurred at the end of World War I when peace was finally achieved after four years of devastating destruction. It is interesting that there was little impact on the stock market of World War I ending on November 11, 1918.  Perhaps euphoria about the conclusion of the war was offset by concerns about the Spanish flu.

It is comforting to see that when the final wave of the Spanish flu subsided in February 1919, the market began an increase of 50% which lasted until November of 1919.  Whether this increase occurred because of the end of World War I or the end of the flu or both is impossible to say, but it does provide encouragement that once the coronavirus begins to subside, the market will bounce back once again. (emphasis mine)


DJIA 1918-1919

Figure 2.  Dow Jones Industrial Average, January 1918 to December 1919


Source: The Spanish Flu and the Stock Market: The Pandemic of 1919, Investment Office

We do not know how long it will take for the Coronavirus Covid-19 to disappear. However it is wise to learn from history and be prepared for any eventuality. Hopefully we will not have any 2nd or 3rd wave with this nasty virus as everyone has already suffered enough.

From an investment perspective, the above details about the Spanish Flu and the equity market offers us valuable lessons.

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