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Concern about the deadly disease has started to affect investor psychology, contributing to a 10 decline in global airline stocks and spurring intermittent plunges in broader averages. The Standard & Poor’s 500 Index (SPX) fell 1.2 percent in an hour on Oct. 13 following reports that plane passengers in Boston were hospitalized with flu-like symptoms.
Investors struggling to assess global growth and
the end of Federal Reserve bond buying have been blindsided with a threat that defies quantification, said Howard Ward, chief investment officer for growth equities at Rye, New York-based Gamco Investors Inc., which oversees about $47 billion. Their instinct is to sell lest others beat them to the punch.
“There is nothing in business school or a CFA textbook addressing how to handicap Ebola,” Ward said in an e-mail. “I doubt stocks can sustain an advance until the news gets better.”
The 10 percent slump in the MSCI World Airlines Index in the six-day stretch through Oct. 13 was the biggest in three years. The measure closed at its lowest level since November that day, when reports of possible cases in Boston arose.
The S&P 500 closed 0.2 percent higher yesterday, after an early rally of as much as 1.3 percent fizzled. Down 6.6 percent since Sept. 18, the index is mired in its biggest retreat since 2012.
Estimating Consequences
The economic consequences of Ebola in West Africa are devastating, with the outbreak pushing economies in the region to breaking point. For investors though, assessing the impact is tougher -- they’ve sold anything that might be affected. The Dow Jones Transportation Average (TRAN), which lists Southwest Airlines Co. and JetBlue Airways Corp., has lost 8.7 percent since Sept. 18, even with yesterday’s 2.6 percent rebound. The Dow Jones U.S. Hotels Index slid 11 percent over the same stretch.“Investors are trying to grapple with what I call a ‘What if?’ market - what if Europe falls in a recession, what if ISIS takes over Iraq and, probably the most scary, what if Ebola ends up becoming a global contagion?” Sam Stovall, U.S. equity strategist for S&P Capital IQ in New York, said by phone. “They take an emotional approach instead of a logical one.”
Headlines on the disease have gotten worse. The number of new Ebola cases in three West African nations may jump to between 5,000 and 10,000 a week by Dec. 1 as the deadly viral infection spreads, the World Health Organization said.
Deadly Outbreak
The outbreak is still expanding geographically in Guinea, Sierra Leone and Liberia and accelerating in capital cities, Bruce Aylward, the WHO’s assistant director-general in charge of the Ebola response, said in a briefing with reporters in Geneva. There have been about 1,000 new cases a week for the past three to four weeks and the virus is killing at least 70 percent of those it infects, he said.Guinea needs about $1.2 billion to combat the virus and for budget support following the death of 800 people in the country, Guinean President Alpha Conde has said. Neighboring Sierra Leone requires as much as $1 billion for similar reasons, according to that country’s finance minister.
Rippling Outward
The effects of the epidemic have rippled outward in recent weeks, adding to concern that Ebola may spread in the U.S. and Europe. The first two cases of Ebola being contracted outside Africa occurred, with health workers in Madrid and Dallas falling ill after caring for infected patients. The U.S. and the U.K. began screening some airline passengers on arrival in the past few days.Past pandemic scares spurred volatility without knocking the U.S. stock market out of upward trajectories. The S&P 500 posted a handful of down days in April 2009 as U.S health officials confirmed the first death from swine flu, though the gauge advanced 9.4 percent that month.
During the 2003 outbreak of the SARS virus in Asia, the S&P 500 retreated as much as 4.6 percent from June to August, before climbing to finish the year up 26 percent.
While the broader market struggles, news about Ebola has also spurred rallies in tiny companies whose products might have applications fighting the disease.
Lakeland Industries (LAKE) Inc., a manufacturer of disposable protective gear with a capitalization below $40 million at the end of last month, has seen its stock surge 208 percent and its value swell to $115 million. Alpha Pro Tech Ltd., a face-mask maker, has rallied as much as 209 percent in October, and Tekmira Pharmaceuticals Corp., which is developing a treatment called TKM-Ebola, is up 12 percent.
Lakeland Benefits
Lakeland “clearly is benefiting from the scare surrounding the Ebola virus,” Bryant Saydah, vice president of institutional equity trading at Juda Group in Los Angeles, said in an interview. “It’s difficult to make an educated judgment on whether or not this will make a fundamental change as to the direction of the company. From a trading standpoint, it seems a bit too far.”Concern that every Ebola-related stock isn’t what it seems prompted Financial Industry Regulatory Authority to issue a warning on Aug. 14, urging investors to be alert on “‘pump and dump’ scammers looking to capitalize on fears on a potential pandemic.”
Finra is aware of several potential investment scams involving companies that claim to be involved in the development of products that will prevent the spread of viral diseases, the statement said, without identifying any firms.
“You have the beneficiaries - Ebola drug names that everyone is watching,” Yousef Abbasi, the global market strategist at JonesTrading Institutional Services LLC in New York, said in an interview. “On the other end of it, we’ve seen airline names, lodging names get hurt. Broadly speaking, it’s been very rare that Ebola has impacted the entire market. However, that isn’t to say it can’t happen in the future.”
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