Pandemics and Epidemics

Spring 2020

During the first seven weeks of 2020, despite ominous news from China, Italy and Iran about the spread of the Covid-19 virus, US stock indexes hit new all-time highs. Then, in little more than a month, the market crashed. By March 23, the Dow Industrials dropped 37%; the S&P 500, 34%; and the NASDAQ Composite, 30%.

It seemed that the markets suddenly realized that the virus’s spread to the United States would cause widespread business shutdowns, closings of schools and universities, and stay-at-home orders from public officials. More than 20 million American workers, a seventh of the labor force, would apply for unemployment benefits between mid-March and mid-April. All of that happened. A major recession, if not a depression, seemed imminent.

Then, in response to the crisis, the Federal Reserve, Congress and the Trump administration implemented a number of unprecedented monetary and fiscal measures to alleviate the public-health and economic crises. By mid-April, as the numbers of infections and deaths from the virus mounted daily, the markets staged a sharp recovery. In less than a month, from the March lows the Dow rose 30%, the S&P 29% and the NASDAQ 26%. Justified or not—only time will tell—the markets’ collective wisdom seemed to think that the virus would soon go away and the government’s drastic measures would soon bring a sharp economic recovery.

Is this what typically happens during epidemics and pandemics? Because they don’t occur often anymore, most people have not experienced them and don’t have a clue as to what is typical. But they have happened often enough in history, which can offer some guidance. Here, seeking that guidance, we examine a number, but by no means all, of the epidemics and pandemics that have occurred over the course of US history.