Three reasons why US markets would be hardest-hit in a global coronavirus pandemic

Author: Adam Button | Category: News

The US stock market is the worst place to be in a pandemic

Lets assume the worst-case scenario: That the coronavirus travels to every corner of the world, infecting one-third of the world and killing 1-2% of people.

Markets would crater everywhere, no doubt. I'd guess (and it's only a guess) there would be a 20-30% decline with the risk of something larger. How severe wouldn't necessarily depend on the virus itself, but on whatever the virus exposes -- be it a debt crisis, a political one or some other black swan.

Here are the reasons I think the US will underperform:

1) Valuation

Simply put: The US stock market is trading at an 18 P/E. That's higher than almost anywhere and on that alone, there is more room to fall. Sure, there are mitigating factors and the high-flying tech companies have low debt but all else equal, it's a vulnerability.

2) The US healthcare system

The cost to deliver healthcare is higher than anywhere else in the world. By extension, it will cost Americans more than anywhere else to get treatment. Those without insurance will either not get treatment (further spreading the disease and leading to worse outcomes) or will bankrupt themselves. Those with insurance will bankrupt the insurers themselves. Here's a look at United Health, which is a tempting short.
United Health shares
3) Politics

This is the big one. If there's a US pandemic, the odds of a Bernie Sanders Presidency along with a Democratic sweep rise dramatically. The market wants no part of that kind of government and coming off a pandemic, the US would be malleable for some dramatic changes.

What about the US dollar?

Conversely, the US dollar will hold up well because of its safe-haven status. Those in hard-hit emerging market countries or places that are deeply destabilized by the virus will undoubtedly seek to buy dollars, just as they did in the US-centric housing/financial crisis. That dollar strength will cushion the blow in US stocks for foreign investors but it will also compound the pain for export-oriented US companies.
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