Why Stock Prices Are Increasing

In recent days, a number of medical experts have predicted that the coronavirus will turn into a global pandemic. At the same time, the US stock market has rallied strongly. Why?

I’m not certain. Perhaps there are multiple factors, including an increasing likelihood of Trump’s re-election. But I suspect that one reason is that the stock market disagrees with the experts. The stock market is predicting the coronavirus will not become a global pandemic. But what sort of data would lead to this expectation?

A recent Bloomberg article suggests one possibility:

While cases have spread around the globe, the virus’ impact has been most keenly felt in Hubei, which has seen a staggering 97% of all deaths from the illness, and 67% of all patients. . . .

But Hubei — known for its car factories and bustling capital Wuhan — is paying the price, with the mortality rate for coronavirus patients there 3.1%, versus 0.16% for the rest of China.

 

What could explain this huge discrepancy? The Chinese data is somewhat unreliable, as some deaths from coronavirus are listed as other causes, such as “heart failure”. But that’s true in both areas. Another possible explanation is that the virus has been in Hubei for a longer period and that some of the outside cases will eventually lead to death.

But that explanation doesn’t seem consistent with the facts. From January 24 to January 28, about 6% of the total deaths in China were outside Hubei.  Since then, the share has dropped steadily and is now down to 2.2%. The share should be increasing.

I have two other explanations:

1. The number of cases of infection outside of Hubei is much more accurate than the number within Hubei. Within Hubei, the facilities are overwhelmed and there may be far more infections than reported, as many patients have not been tested. That also implies that the actual death rate is somewhat lower than 3%.

2.  The people who fled Hubei are likely middle-aged, not elderly. Most of the deaths are among the elderly. Note that the death rate overseas is also lower than in Hubei, but not as low as the non-Hubei part of China.

I suspect that the stock market disagrees with experts who predict a global pandemic:

The Wuhan coronavirus spreading from China is now likely to become a pandemic that circles the globe, according to many of the world’s leading infectious disease experts.

It will be interesting to see who turns out to be right. I don’t have a strong opinion either way.

One thing is clear, the Chinese government badly mishandled this crisis and Xi Jinping’s authoritarian policies have created a horrific situation within Wuhan. If local medical officials had not been silenced early on, the crisis could have been nipped in the bud. On the internet, lots of Chinese citizens are now recommending the documentary film “Chernobyl”.

Off-topic: We now know how many Republicans have integrity.

Precisely one.