5 Reasons the Swine Flu is Affecting the Stock Market

The swine flu has been in the headlines for the past few days, and in this article we’ll look its impact on the stock market.

First, some background. The current flu outbreak is caused by a strain (variation of the virus), A(H1N1). New flu strains are not unusual: they appear quite frequently due to mutations of the virus. This particular strain happens to be easily transmitted between humans, does not encounter much resistance due to its novelty, and has a relatively high mortality rate. As a result, there is a risk of a flu pandemic (an epidemic on a global scale). How large this risk is, however, is far from obvious. The World Health Organization raised the pandemic alert to the second highest level, “Phase 5.” Some experts suggest the danger is greatly exaggerated. What all experts agree on however, is that calling this the “swine flu” is very misleading, since pigs do not spread this flu.

Here is how the swine flu affects the stock market.

1. Unfortunately, the vast majority of people are worried  about eating pork. In fact, in an amazing show of voodoo science in the modern world, the Egyptian parliament passed a law that destroys pigs near urban centers. While most governments are sophisticated enough to avoid such blunders, nothing will stop some consumers from shunning pork meat in the supermarkets. This may impact the share prices of meat producing companies, at least for a few weeks if not longer.

2. More importantly, many governments issued alerts to its citizens advising against travel to Mexico, where this strain of flu originated. This definitely will hurt Mexican economy, and its stock market is already experiencing that problem.

3. Furthermore, some people might deduce (correctly) that traveling anywhere in the confines of an airplane carries a high risk of infection. The reduction in travel has already hurt airline and hotel stocks, and might continue to further damage these sectors.

4. Finally, the global economy, which is already in recession, is definitely at risk if the flu becomes a pandemic. The reduction in travel, the fall in consumer sentiment, as well as the interruption in business and production activities can prolong or intensify the economic slowdown. Therefore, the broad equity markets would fall substantially if a significant number of deaths are reported from outside of Mexico.

5. There are also some industries that benefit from the flu epidemic, like pharmaceuticals and health care. In times like this, people become more concerned about any type of flu (and not just the new strain). As a result, they visit the clinics more often, and are more likely to buy the prescribed drugs. Pharmaceutical stocks jumped on April 27, 2009, only to lose ground as investors realized the flu is not as serious as they thought (Refer to the table below).

Ultimately, it seems the swine flu is having serious effects on the market – if you’re an investor who is concerned about losing some of your investments, this may be the time to look into less risk, low risk, or no risk investments such as IRAs, CDs, Money Market Accounts, Mutual Funds, and Savings Bonds.