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Swine flu and the stock market

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During the panic about Asian bird flu in 2005 and 2006, airline, hotel groups, insurers, and oil companies stocks fell heavily, while shares in drug, healthcare, and cleaning product businesses soared.

There’s still uncertainty around the swine flu situation. Uncertainty however has proven to be a big stock market mover in the past year. Further, even the slightest new information about such a potentially explosive issue could have a significant effect on the markets. Here are some possibilities in the short term.

Sectors That Could Be Hit Hard

* Transportation sector: Travel advisories and recommendations to stay home won’t help transportation stocks; ETFs like IYT.
* Reduce travel and visits to retailers, movie theaters, restaurants, and other public places.
* With recessionary pressures causing people to cut down on luxuries and discretionary spending, the travel industry is in an especially vulnerable position.
* An additional pullback from a flu scare will have a significant impact on cruise line stocks more than hotel companies, according to Zacks Research analyst Sean P. Smith, who thinks those in the worst position include Carnival and Royal Caribbean (which both have close quarters and itineraries including ports in Mexico.)
* Energy: Fewer people flying and traveling in general could cause weaker overall demand for energy and crude oil funds; ETFs like USO.
* Equities in general: As we’ve seen in the past six months, a little bit of uncertainty can go a long way towards causing equities to tank; ETFs that index equities such as SPY and VTI.

Sectors That Could Get a Lift

* Pharma and Healthcare sectors: In anticipation of demand for vaccines and health services, shares of pharmaceutical and healthcare companies could appreciate; ETFs like IRY and IHE.
* Gold and Commodities: In the last year precious metal ETFs have been popular buys on days when panic seemed to set in; ETFs like GLD and SLV.
* Treasuries: Similarly, a flight to safety away from equities could make for inflows in bond funds thought to be very secure; ETFs like IEF and TIP.
* Industries that could benefit include those that deal in home entertainment,

If the current swine flu epidemic ends up infecting millions of people, then global GDP could be adversely affected at a time when the global economy is already in its worst recession in decades. If, however, the current epidemic ends up being about as virulent as the SARS outbreak of 2003, then Mexico will likely suffer a short-term economic setback but the overall effect on global GDP is likely to be rather small.

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