A Market Diagnosis for the Wuhan Coronavirus

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January saw the markets bedeviled by macro risks, with inflamed U.S.-Iran tensions followed by revelations regarding the spread and nature of the Wuhan coronavirus (also known as 2019-nCoV). The Federal Reserve committed to supporting “inflation returning to the Committee’s 2% target” (emphasis added), a pivot from previous statements that merely committed to supporting inflation “near” the 2% target. This was interpreted by the markets as a dovish tilt in the Fed’s policy stance.

A challenge that’s been seen before?

With the Wuhan coronavirus showing little sign of abating, we chose this month to analyze the impact of emerging market epidemics. We assume trends in Google searches for specific terms (e.g., “avian flu”, “ebola”, “zika”, and “coronavirus”) are indicative of media coverage and market anxiety. To that end, we use Google Trends, which indexes the number of Google searches for a particular term over time.

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