Investors looking to the 2002 to 2003 SARS outbreak as precedent for how global markets and the economy will perform during the current coronavirus developments will receive an imperfect guide, according to economists from at least one firm.

Extrapolating the S&P 500’s performance from during the SARS period to the present would suggest that stocks are going down before recovering. But to do so alone would be “amongst the most misguided approaches” to predicting market performance amid the current outbreak, said Tom Porcelli, chief U.S. economist for RBC Capital Markets.

That’s because both the economic backdrop and geopolitical concerns during the SARS outbreak were vastly different than those of the present, making it difficult to directly compare the two situations, he said.

“With the advent of the coronavirus many market participants have dusted off the market reaction in the midst of the SARS epidemic circa 2002/2003. Looking at the tape for that period shows U.S. equities came off nearly 13% from the time the first case of SARS was reported in late 2002 to the 2003 intraday lows,” Porcelli said.

“But one major event at the time makes market reaction analysis with respect to SARS pretty useless – the Iraq War,” he added.

As Porcelli notes, former President George W. Bush’s administration signed off on a resolution authorizing military force against Iraq in mid-October 2002. Developments around the beginning of this war overlapped with the first case of SARS, reported in Guangdong, China, on Nov. 16, 2002.

While the S&P 500’s low that year did come on the same day the World Health Organization issued an emergency declaration over SARS in March 2003, the outbreak’s overall lifespan was too closely aligned with developments with the Iraqi War to ignore their joint impact on markets, Porcelli said. The first invasion of the Iraq War came just a week after the WHO’s alert.

“The point is: How can we possibly disentangle the market reaction to the build-up and start of the Iraq War from that of SARS? We can’t,” he said.

Economic backdrop

The pathological similarities between the SARS virus nearly two decades ago and the current coronavirus have further exacerbated comparisons between the two. Experts have suggested the 2019 virus is genetically similar to SARS, but with clinically milder severity and fatality rates observed so far. The coronavirus has so far resulted in about 170 deaths and more than 8,000 cases worldwide, versus the 774 deaths among more than 8,000 cases reported during the SARS outbreak.

Comparisons in market response to the two outbreaks are less relevant given the differences in economic backdrops during the periods these diseases arose, Porcelli said.