What’s happening

Global financial markets are reacting sharply to the coronavirus outbreaks.

Trillions of dollars of value have been wiped out as the major stock market indices dropped amidst concern. Since fear took over the market on Feb. 20th, the S&P 500 (^GSPC) had dropped around 13% by market close on Friday, Feb. 28 going into the weekend.

The index had lost all its gains of 2020, bringing it back to where it was in October.

The S&P 500 at market close on Friday, Feburary 28, 2020. More

There are two prevailing points of view on what this means for the market — the market is overreacting, and this is a serious event that could have long-term economic ramifications.

Here we will present you with the most authoritative voices on both sides of the debate.

Background

The coronavirus (called COVID-19 by the authorities) is a new type of respiratory illness similar to the flu, with a fatality rate of around 2%. So far over 82,000 cases have been confirmed.

The spread of the virus, which was first identified in Wuhan, China, was limited by quarantine, but has nevertheless spread over China’s borders with outbreaks in South Korea, Japan, Italy, and Iran. Due to a controversial quarantine, the disease has spread in isolated incidents in the U.S. The disease has also reached South America. It’s a global situation.

The Centers for Disease Control (CDC) has said that the disease has a rising risk of becoming a big problem, and has told the public to expect the possibility that it could be “bad.”

Markets hadn’t reacted much until Feb. 21 when reports emerged that the virus was not going to be easily contained. Now, this is shaping the narrative around markets in a big way, and two sides have emerged, a side that’s very concerned and another side that sees this as something that will be a speed bump to the global economy — and potentially an opportunity to buy stocks at a discount.

Why there’s debate

A new disease that is in the beginning stages of spreading around the world isn’t a little thing. It has the potential to disrupt supply chains, freeze consumer spending, shut down factories, and damage sentiment. And without an end in sight, there are plenty of reasons to be defensive.

On the other hand, the market has shrugged off a lot of things in the past. Despite bouts of volatility, stocks generally go up over time. That’s why people often say “buy the dip” when things get tough as these fleeting moments often prove to be opportunities to accumulate stocks cheaply. Early on, some investment professionals drew comparisons to other outbreaks of respiratory viruses like SARS and MERS and expected a similar market response: brief volatility followed by a long recovery.

Of course, every instance is different and past results are no guarantee of the future.

View photos The state of coronavirus around the world. (Graphic: David Foster/Yahoo Finance) More

What’s next

Everyone, ranging from Wall Street strategists to Fed officials to business executives have uttered a version of “we’ll have to see how it plays out” or “that is the question” because no one knows with any amount of certainty what is next.