Last week saw the worst week on Wall Street since 2008, as the Dow fell into correction likely due to the outbreak and spread of COVID-19, commonly called novel coronavirus. A market correction is a nerve-wracking event for investors, but the current uneasiness in the markets may be no cause for panic.
While the spread of COVID-19 is atypical, market corrections are not. In fact, they are an entirely normal process, and not altogether unexpected after experiencing the longest-running bull market on record. There have been 22 market corrections since 1974, and they are aptly named because the market usually “corrects” itself and returns prices to their longer-term trends. While the coronavirus is likely to cause economic impact into at least the second quarter of 2020, historically, Wall Street’s reaction to these types of epidemics has been short-lived. In the recent past, the 2002 Severe Acute Respiratory Syndrome (SARS) outbreak, the 2012 Middle Eastern Respiratory Syndrome (MERS) outbreak and the 2014-2016 Ebola Virus Disease (EVD) outbreak did negatively impact economic growth and disrupt the capital markets over short time horizons of one or two years. However, these past virus-triggered market corrections indicate that economies and financial markets will not be significantly impacted over the long-term.