(Photo by NICOLAS ASFOURI / AFP) (Photo by NICOLAS ASFOURI/AFP via Getty Images)
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A black swan event is a term used on Wall Street that refers to a rare and unpredictable occurrence that is beyond what is expected and has severe consequences. It’s derived from European explorers who had previously thought that all swans were white and only white, as that was all they knew. They were overcome with shock and confusion when Dutch explorer Willem de Vlamingh discovered the existence of black swans in Australia.
The coronavirus is a black swan event, which may have serious consequences for your job, the stock market and global economy.
The United States economy has been strong with record-setting high levels of employment. The stock market has rebounded incredibly since the financial crisis, increasing the net worth of many Americans.
Historically, when the stock market goes relatively straight up, there is an expectation of a correction somewhere down the road. A correction is about a 5 to 10% drop in value of stocks. It’s viewed as necessary, like clearing out the dead brush in a forest to prevent a future fire. Even the wisest minds on Wall Street admit that they can’t anticipate where the next correction will come from and what damage it may bring. It now seems that the coronavirus is that black swan event.
The coronavirus is a large family of viruses, which include severe acute respiratory syndrome. An outbreak of a new coronavirus that began in Wuhan, a city in China with roughly 11 million people, and has already contributed to the deaths of at least 81 people in China. The virus has spread throughout China and other countries, including Thailand, Hong Kong, the U.S., Taiwan, Australia, Macau, Singapore, Japan, South Korea, Malaysia, France, Canada, Vietnam and Nepal. It’s estimated that about 3,000 people have contracted the virus so far.
China has enacted measures to limit the movement of its people. This is especially challenging since the virus started around the Chinese Lunar New Year, which is known as the country’s biggest travel period. The government has quarantined more than 50 million people. This hasn’t completely stopped people from evacuating. The mayor of Wuhan said that 5 million people have already left the city. He also admitted that the city did not release information about the virus and suggested that it was suppressed by government authorities. The health minister of China said the coronavirus is increasing in its virulence. People can be contagious before they even exhibit symptoms. This is dangerous, as it makes people appear healthy when they’re not.
Major shops, restaurants and tourist destinations are shuttering their doors across China. To avoid spreading the coronavirus, companies in China have advised staff to work from home. Employees returning from impacted areas are being told not to show up to work.
Global stock and bond markets have been hit by mounting worries. Investors are afraid of how this will play out. China’s growth will surely stagnate, they contend. International commerce will slow down. Little is known about the virus and there is no guidance on how it will affect people and the economy.
Corporate CEOs and top executives desire certainty and resent unpredictable events. In this instance, there is an extraordinary high level of uncertainty regarding how bad this virus will spread and the damage that it will cause.
The chances are likely that companies will temporarily pull back until there is clarity. China and neighboring countries are shutting down restaurants, hotels, resorts and other businesses that may spread the virus. This will negatively impact China’s economy. In light of the global nature of business, the U.S. will feel its effects.
It’s reasonable to believe that for the near-term period of time, stocks will fall in value, hiring will temporarily slow down, new corporate initiatives will be placed on hold and the overall business climate will be fearful.
In the past, we’ve effectively dealt with and overcome other fast-spreading diseases that seemed horrific and were able to go back to business and our lives. Unless this becomes a horror-movie type of virus, which it most likely won’t, there will be cures developed for those afflicted and antidotes to prevent others from getting sick.
In an interview with CNBC, Dr. Paul Stoffels, the chief scientific officer of Johnson & Johnson, said that he believes the drugmaker can create a vaccine to fight against the coronavirus. Stoffels stated, “We have dozens of scientists working on this, so we’re pretty confident we can get something made that will work and stay active for the longer term.”
With courage, ingenuity and global cooperation, the fear will subside, cures will be found and things will go back to normal.