Cost of Living

Why the TSX lost 1,500 points in just one week and what coronavirus has to do with it

After a brutal week for North American stock markets because no one knows how the COVID-19 virus will affect North American economies, there could be hints from China as to how it could all play out.

China could set example for what happens after an economic pause due to COVID-19

A trader awaits an order in the S&P 500 pit at the CME Group's Chicago Board of Trade in this Aug. 2012 file photo. (Tim Boyle/Bloomberg)

North American stock markets just had their worst week since the 2008 market crash. The Toronto Stock Exchange ended the week lower by 1,580 points and the Dow Jones Industrial Average lost 3,583 points. 

Although the markets have been skittish around the spread of the coronavirus in China for some weeks, the Canadian sell-off began in earnest on Monday, as South Korea, Iran, and Italy began talking about containing the virus.

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"So there's more worry about the spread of the disease," said Lesley Marks, chief investment strategist at BMO Private Banking.

"Nobody can predict how this is going to play out. We certainly have history as a guide for how other epidemics have played out, but the numbers in this particular epidemic are much larger and the world is a different place than it was even if you compare it with SARS."

On Wednesday, the U.S. Centers for Disease Control announced that a patient in California had contracted the virus without having travelled anywhere known to have the virus, nor being exposed to anyone who was known to be affected.

Traders work on the floor at the New York Stock Exchange on Feb. 25, 2020. (Brendan McDermid/Reuters)

This raised questions about how many people this person could have affected without knowing it.

"And so, right now, we're dealing at a point of what I would call maximum uncertainty," said Marks.

China could set the pattern

In the midst of that uncertainty, market watchers are trying to figure out what might happen next and are looking to China for examples.

China pushed pause on its economy beginning with its four-day Lunar New Year holiday, beginning on Jan. 25. The country extended the break for two additional weeks, to try to contain spread of the virus.

Although Beijing ended the extended holiday on Feb. 10, it took time for factories to restart in part because workers were restricted in their movement. Those factories are still thought to be operating under capacity

Every business, in my opinion, is going to suffer.- Barry Schwartz, chief investment officer, Baskin Financial

"I think a rational person using the base case right now is expecting that our lives are going to be significantly disrupted for a period of time and then it will be over," said Barry Schwartz, chief investment officer at Baskin Financial.

"But you know whether that means we have to work from home or we're not going to go to the shopping mall and we're certainly not going to travel to Italy. So maybe our summer plans are off. This is what people are trying to gauge."

Schwartz said that he expects a broad swath of businesses to be affected if COVID-19 gains a foothold in North America because people would choose to stay home. 

"Every business, in my opinion, is going to suffer. Even the dentist. I'm not going to leave the house. I'm not going to go to the dentist office. People are going to be staying at home more and avoiding crowds and leaving their house and that's fine, we'll get past that. Probably the only company that will do fine here is Netflix," predicted Schwartz.

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There are indicators in Asia that could show how economies start to recover after the virus peaks and begins to ebb.

A trader on the floor of the New York Stock Exchange watches the stock market drop on his screen in this April 2018 file photo. (Lucas Jackson/Reuters)

In an interview, Apple's chief executive Tim Cook said that Apple's factories are restarting in China as spread of the virus is brought under control. As well, Starbucks announced that 85 per cent of its Chinese locations have reopened.

"I think all the demand that we've lost here will recover," said Schwartz. "It's just really tough living through it."

Written and produced by Tracy Johnson.
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