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Ebola & The Stock Market: Repercussions of Panic

This article is more than 9 years old.

The only thing spreading faster than Ebola these days is the fear of Ebola itself. The deadly virus, boasting a fatality rate of over 70%, has the ability to awaken an international panic. Fortunately the CDC and the newly appointed Ebola czar, Ron Klain, have more than enough resources to halt the outbreak within the United States. Yet the effects of Ebola will continue to hamper the economy through reduced air travel, slower production in western Africa, and increased volatility due to the fear the disease radiates.

Ron Klain and the CDC have about 3 weeks to control the spread of Ebola in the US. As the holiday season rapidly approaches, it will be vital for the transportation industry to have Ebola out of the headlines. If Ebola cases are continuing to pop up around Thanksgiving, one could expect to see a dramatic decrease in the number of travelers, hampering industry profitability. Airlines have rebounded from their precipitous drop at the peak of the Ebola scare when United and Delta were down 16% and 18%, respectively, over a span of three weeks (September 23 to October 13th). A new study published in The Lancet calculates that without airport screening three people infected with Ebola will board an international flight each month. To counter this alarming statistic, Klain and his team must develop a sure proof screening at all US international airports to avoid another scare before the holiday season.

A longer term consequence of the Ebola outbreak is the damage it has done to the economies of western Africa. Liberia, recovering from a brutal civil war, has been hit the hardest as the UN predicts that Ebola will shave off at least 2% of the country’s GDP. Quarantines and travel restrictions have brought production within the country to a complete halt and in response, the finance ministry is bracing itself for up to $30 million in lost revenues, a large figure for such a miniscule budget. The problem isn’t limited to Liberia. Sime Darby, the world’s largest producer of oil palm is slowing production and Sifca Group, an Ivory Coast agribusiness, has halted rubber exports.

The Ebola scare is a paradigm to FDR’s famous statement, “the only thing we have to fear is fear itself.” Ebola, as the President and other health experts have continually stated, is not a reason to fear. It requires extensive contact with an infected person to contract, and the United States has a strong enough health care system to contain an outbreak. Yet people continue to fear the virus and the stock market responds to this fear.

(Data Sourced from GoogleAnalytics & Yahoo!Finance)

The graph above tracks the relative number* of Ebola inquires on Google to the VIX, commonly known as the fear index. On October 15th, the same day the CDC announced that an Ebola infected nurse could have infected up to 300 people, the Dow plummeted as much as 370 points. On October 22nd, the same day it was announced that the 43 people who were in contact with the US’s first Ebola patient were cleared of the disease, the stock market rallied and the VIX dropped 11%. The link between the market volatility and Ebola demonstrates the fear that the follows the outbreak. If Ebola cases continue to pop up, fear will heighten and the markets will be affected.

Ebola has not had a negative impact on all sectors, but has actually boosted some niche industries. Hazmat-suit companies are soaring as demand is through the roof.  As of October 23rd, shares of Lakeland Industries Inc. (LAKE) and Alpha Pro Tech Ltd. (APT) were up 142% and 130% respectively since August 1st. These companies are likely to continue to perform well because hazmat suits can only be worn once before they are discarded. Drug makers focusing on Ebola treatments are also performing well. Tekmira Pharmaceuticals (TKMR), which is developing a vaccine for the virus was up 125% on the year to October 23rd.

Just as SARs and the swine flu before it, Ebola will likely be contained before it runs rampant around the world. Yet the economic effects of the virus will linger. It will take years for West Africa to recover from this setback. The UN predicts it will cost $2 billion to contain Ebola, and that figure does not even include the amount of economic activity lost to Ebola’s presence. The depressing fact is that these astronomical costs, and more importantly thousands of deaths, could have been avoided if action had been taken sooner. If the US and other developed nations had provided greater aid to the epicenter of the disease back in February when the disease was budding, they would have been able to contain it for a fraction of the cost. To avoid these outbreaks developed nations must focus not just on their own country’s healthcare systems, but on global health as well because diseases have no boundaries. As Ebola has demonstrated, Liberia’s problem is our problem.

*Relative Number reflects how many searches are performed in relation to past searches. See About Google Trends for more info.