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
The one risk here is that we get an odd mutation of the swine flu (easily transmissible to humans) and the avian flu (deadly), that retains the worst of both. I think the odds are low.
I hesitate to say this, but we are better at managing public health risks than financial risks. I’m not deeply concerned on this; there are more severe and more likely risks that face us.
So far, swine flu is nothing compared to the Spanish flu, the article mentions 50 to 100 millions deaths. But yes this or next time will be different, no way to censor information. No idea what it means for capital markets, probably little.
So will this time be different? We communicate by twitters nowadays and are blessed(?) with a peace-making bridge-making president in the White House. Yet somehow this is bad news vis-à-vis the swine flu impact on capital markets. I can’t believe it.