Follow the bouncing stock market—with its extreme ups and downs—and you might think the coronavirus pandemic is a wholly unpredictable force, too erratic for the world’s leading scientists to comprehend. You’d be wrong.
The spread of COVID-19 has been, and remains, largely predictable. Scientists already know what it’ll take to beat the virus. Its transmissibility and mortality rate are known to health officials. All of this information has been communicated publicly.
And yet, investors appear flustered by the disease, unsure what to make of it.
Folly defeats fact as investors ignore health experts
As a physician, former healthcare CEO, and Stanford University instructor in the schools of business and medicine, I’ve spent my career surrounded by both clinical and financial experts. Most of the time, both groups make rational decisions based on available data and predictive analytics.
This is not one of those times, at least not on Wall Street.
While health officials have kept a steady finger on the scientific data—pointing to the foreseeable, exponential growth of COVID-19 infections and the predictably higher death count—investors have ignored the facts and consistently overreacted to the president’s pronouncements. With each daily press briefing, traders respond with either irrational exuberance or anguish.
To give you an example, look at a recent week of trading:
- On March 31, President Trump said the United States faced “a very, very painful two weeks” based on scientific projections that 100,000 and 240,000 Americans will die from COVID-19. That night, after the bell, one headline read “Dow falls 900 points as Wall Street fears coronavirus will shut down economy longer than expected.”
- On Sunday, April 5, investors breathed a sigh of relief when Trump declared, “The U.S. will reach a horrific point in terms of death, but it will be a point where things will start changing for the better.” The next day, U.S. stocks ended 7% higher “as hopes grow that the coronavirus outbreak may stabilize soon.”
To summarize: Traders went from betting on a prolonged shutdown to expecting the outbreak will soon stabilize—all in less than one week.
In the five intervening days, no new or surprising information had emerged: Based on known mortality data, the projected death count provided on March 31 was fully expected, as was the declining death rate in New York City on April 5, a result of social distancing measures. As such, neither the plunge nor the surge on Wall Street made any logical sense.
To clear up misconceptions among investors and enable smarter economic forecasts, everyone should understand the following three facts.
1. The coronavirus is not erratic or unpredictable. Humans are.
Once scientists understand the patterns of viruses and virus-like agents, their future impact becomes highly predictable.
For example, health experts know seasonal influenza infects 20 to 30 million Americans each year, killing about 40,000. The exact case count and mortality rate may shift slightly from year to year, but they always fall within a predictable range.
Based on available data, scientists know that COVID-19 is approximately twice as contagious as the flu and about five times as lethal. Variables include the average age of a population and its overall health status.
In Italy, for example, death rates from the coronavirus have proven much higher than average due to the nation’s large elderly population and high prevalence of lung disease. As a result, the country’s medical needs overwhelmed hospitals early on and the patient-ventilator ratio took a nasty turn. By contrast, rigid social distancing and aggressive testing in Germany has held the virus in check.
In the United States, health officials know the coronavirus will spread until a vaccine is available or a sufficient percentage of the population develops an immunity to the disease. As such, we will see the total number of people infected, as well as the total number of deaths, rise for many more months, which leads to the second important fact.
2. Social distancing will slow transmission. It won’t end the pandemic.
With 95% of Americans now under some form of lock-down order, fewer people are getting infected each day, which will reduce hospital demand and decrease daily mortality over time. Phrased in more familiar terms: Social distancing helps “flatten” the curve and diminishes the need for critical care services.
Physical distancing measures are essential for slowing the spread of the disease, thus buying hospitals time to stock up on testing kits, ventilators and protective equipment like N95 masks.
New York City, which has been hit hardest by the outbreak, saw hospitalizations fall in recent days—evidence that the city’s efforts to reduce human interactions are working. However, it’s important to understand that social distancing will extend, not shorten, the length of the pandemic. The infection rate in NYC and elsewhere will definitely rise again after restrictions are lifted. No one should expect the pandemic to end simply by staying home most of the time. That’s not how viruses die.
Ultimately, the spread of COVID-19 will continue until (a) an effective vaccine or medication becomes commercially available, which is expected to take 12 to 18 months, or (b) approximately two-thirds of the population (roughly 200 million Americans) acquire the virus and recover from it, producing nationwide “herd immunity,” which will also results in a prolonged time frame.
At present, experts remain skeptical about the safety and efficacy of drugs like hydroxychloroquine (a malaria medication the president has mentioned as a viable treatment for the coronavirus), and nearly everyone agrees that lifting all restrictions would be too risky. As a result, our nation will have no choice but to walk a tightrope between easing social distancing too fast and too slowly.
There are some early strategies in the works that would get some Americans back to work while simultaneously protecting the nation’s most vulnerable populations, but no formal plan has yet been approved.
3. The future of COVID-19 is predictable. The stock market isn’t.
Scientists have a reliable understanding of how COVID-19 will progress between now and the time a vaccine is ready.
They know millions more Americans will get sick from the virus and at least 100,000 will die from it in the coming months. Based on these scientific certainties, and the need for some level of prolonged social distancing, millions more Americans will file for unemployment and workforce productivity will continue to lag for the rest of the year. These aren’t predictions, they are just the biological and mathematical facts.
Volatility on Wall Street is understandable when investors are confronted with unexpected information or wildly disparate data. Neither is the case with the coronavirus. We would predict a massive spike in the market upon news of a proven, breakthrough COVID-19 medication just as we’d expect a massive decline should the virus mutate and spark a new pandemic. But neither is likely and no such surprising event has occurred so far.
As the United States enters a recession, dips in stock prices make logical sense. Massive seesawing in the market does not. As such, the recent 1,000-point daily gains and 2,000-point losses are irrational and foolish. Wall Street is usually governed by data and logic. Amid the coronavirus pandemic, however, logic and data have been overpowered by fear and fantasy.
- Substantial undocumented infection facilitates the rapid dissemination of novel coronavirus (SARS-CoV-2) – Science Magazine
- England coronavirus testing has not risen fast enough – science chief – The Guardian
- Coronavirus Tests Science’s Need for Speed Limits – The New York Times
- Trump Falsely Distorts New York Times COVID-19 Science Story – FactCheck.org
- This is the brightest supernova ever seen – Science Magazine
- Coronavirus Today: Science will save us – Los Angeles Times
- Italians stuck at home are measuring light pollution for ‘science on the balcony’ – TechCrunch
- ‘Oumuamua might be a shard of a broken planet – Science News
- College of Arts and Science converts thriving academic programs to departments – Vanderbilt University News