Swine Flu Outbreak, U.S. Government’s Stress Test Impact on U.S. Markets

While health authorities grapple with preventing the spread of the swine-flu outbreak, it could not have come at a worse time for the already battered global economy. Stock market analysts are hopeful that, as with past crises such as SARS and bird flu, this outbreak will be short lived, however, it has already impacted negatively on both U.S. and world markets, and investors will no doubt be keeping a close eye on developments. Some see Monday’s Wall Street sell-off as a case of investors cashing in profits they may have accumulated in recent weeks when markets were rallying, and the day’s light trade supports this. Yet others believe the sell-off was motivated by fear and this view appears to be supported by the fact that stocks relating to airlines and other travel-related business took the hardest knock as authorities step up travel security measures. The possibility that the swine-flu outbreak is swaying markets can be seen in the increase in pharmaceutical stocks, most notably Gilead Sciences and GlaxoSmithKline – both manufacturers of flu treatments.

In addition to concerns regarding the swine-flu outbreak, investors remain wary of the financial sector ahead of the results of the U.S. government‘s so-called “stress test” being conducted on nineteen influential banks. Analysts have noted that the lack of clarity regarding the content, criteria and methodology of the stress test has contributed to investor caution. Adding to the uneasiness is speculation as to how the government intends to raise the money to bail out banks that they don’t want to see failing, with the general consensus being that none of the banks being assessed will be permitted to fail as even one such failure would have far-reaching consequences.

In the meantime credit card issuers have come under pressure as fears rise that, as the recession continues, more cardholding consumers will default on their payments. Two examples are Discover Financial Services which fell 11 percent and Capital One Financial Corporation which saw a drop of 12 percent. While acknowledging that the economy is still in a downturn, many stock market traders believe that it is not as bad as it seems on the surface and there are still investment opportunities to be had and, to coin a phrase, investing on the stock markets has always a case of “nothing ventured, nothing gained”.