History suggests that outbreaks like the one in China can have negative effects that go well beyond their death tolls.

The stock market has been remarkably stable in recent months, but investors seem seriously spooked by the spreading Wuhan coronavirus epidemic. As of 12:45 p.m. Monday, U.S. stocks are down 1.2 percent, having rebounded slightly from deeper lows. European markets fell more than 2 percent today. Why is the reaction so strong in financial markets that are distant from the center of this epidemic?
The history of the SARS epidemic reflects the fact that these novel virus outbreaks can have societal and economic impacts that are outsized, even compared to their death toll. SARS claimed nearly 800 lives globally during its 20022003 outbreak; for comparison, seasonal flu typically kills between 12,000 and 61,000 people annually just in the United States, according to the CDC. But because these disease outbreaks cause immense disruption to travel, business activity, and everyday life, they pose significant economic risks that show up in stock prices, especially for firms in industries exposed to travel or to the Chinese economy.
Within China, Hubei province is under an unprecedented travel lockdown, and throughout the country people are being urged to change their plans, with large gatherings being canceled despite the Lunar New Year holiday. Businesses are also extending their closures for the holiday, at the governments instruction. As the epidemic grows, those disruptions may become more economically costly, canceling more travel and reducing output as people continue to stay away from work and from crowded places.
Those possibilities mean falling stock prices for U.S. firms especially exposed to the Chinese market, and to the travel sector. Wynn Resorts and Las Vegas Sands, U.S.-based casino firms that own major properties in the Chinese territory of Macau, are both down more than 6 percent on Monday. U.S. airline stocks are also hurting Delta is down 3.8 percent, American is down 5.4 percent reflecting concerns that the epidemic will encourage people to delay or cancel travel plans. And Disney, whose theme parks in Hong Kong and Shanghai are closed due to the outbreak, is down 2.3 percent today.
Other stock declines may reflect concerns about how the outbreak could affect broader economic performance in China. Caterpillar is down nearly 2.5 percent; the company is often treated as an indicator of the global economic outlook because heavy equipment sales rise and fall with global public and private investment.
Finally, there is uncertainty about the extent to which the epidemic will spread and intensify. Markets react negatively to increases in uncertainty; investors will be waiting for more clarity on how severe, and how disruptive, this outbreak will prove. That rise in uncertainty has investors moving away from risky equities and toward safer investments like bonds.
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