Daily Management Review

Ebola Scare on the Market of 2014 could be Morphed by Zika in 2016, Warns Analysts


Ebola Scare on the Market of 2014 could be Morphed by Zika in 2016, Warns Analysts
An ominous message has been delivered by one of Wall Street's most closely followed bulls about how the Zika health crisis could impact markets in the weeks to come even as fear mounts around the global impact of the virus.
The markets have been surprisingly placid in the face of the growing health crisis even as U.S. health officials move to halt the spread of the virus in Miami where the disease has raged for weeks. However Canaccord Genuity's chief market strategist told CNBC that could easily turn on a dime when previous circumstances are taken in to account.
"When we study 2014, we were dealing with many of the same issues that had yet to cause a correction," Tony Dwyer told CNBC's “Fast Money” earlier this week .
According to Dwyer, many of the same ingredients that contributed to the turmoil in the market and the S&P 500 index in 2014 are bubbling beneath the surface of the current rally. In that year the S&P 500 index had experienced a sharp and sudden correction. A  weak euro zone, falling oil prices and persistent fears about the Federal Reserve's next policy move were among the factors that had triggered he correction at that point in time.
Dwyer said that two years ago "the straw that broke the camel's back was the first confirmed case of the Ebola virus in the U.S."
Amid low volatility, stocks were trading near all-time highs in October 2014, the analyst added. But soon after that a deep slide in U.S. markets was triggered by the rapid spread of the Ebola crisis. That year blue-chip and tech shares were shoved in to correction territory due to fears surrounding the spread of Ebola.
"The only thing scarier than your own health fear is that of your children," noted Dwyer while discussing the relation between shaking of investor confidence and a global or even a regional health scare. Pregnant women are the most vulnerable to the Zika virus as their infection can lead to them giving birth to children with birth defects.
Since turning neutral on U.S. stocks back in mid-July, Dwyer has been calling for a market correction all the same. The market is yet to be pushed out of its comfortable range or lead to a sharp downturn by a blitz of earnings results, economic data and global central bank meetings, Dwyer said while he noted that stocks have floated in a historically narrow range.
However investors could be spooked by the Italian bank issues, a potentially more hawkish Fed and energy price weakness combined with the Zika threat as these two factors have that potential, said Dwyer. Similar to the one that occurred around the Ebola scare, these risk factors may cause a correction in the market, he said.
The first U.S. Ebola case was reported on September 30, 2014. The strategist noted there has been a slip of 1.7 percent from its peak for the S&P 500 index from that time onwards. The market was already down 7 percent by the time the third U.S. case was diagnosed.
"Obviously, no two situations are exactly alike, but this is pretty close. I'm not looking for anything like a 10 percent decline, and the market isn't showing me we're going to get it, but this could be the catalyst when we've been looking for a catalyst," concluded Dwyer.


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