Spanish Flu, Atlas Shrugged, War or Peace

Spanish Flu, Atlas Shrugged, War or Peace?

2020 and correlated years

In college, I was an economics major, but I have always been fascinated by history, particularly economic history.  The economic papers I find most interesting are those that discuss financial market reactions to historical events like key military battles, the Space Shuttle Challenger disaster, or the 911 attacks.  These papers are of the academic variety with titles like “Turning Points in the Civil War: Views from the Grayback Market” and “The Stock Price Reaction to the Challenger Crash: Information Disclosure in an Efficient Market.”

Not surprisingly, many of these papers find that financial markets quickly and accurately discount the economic impact of events.  For example, in studying the economic history of the US Civil War, one finds that financial markets reacted most strongly to the battles of Antietam, Vicksburg, Gettysburg, and Atlanta.  Following the Space Shuttle Challenger disaster, the stocks of various defense contractors all fell, but only Morton-Thiokol had such an order imbalance that the stock had to be halted.

As a result, years ago, I built a spreadsheet of every stock market year and corresponding correlation matrix since 1896. I used data from Dow Jones for each trading day of the year.  What this data allows me to do is to plug in the current year, and then easily find the historical years to which the current year is most similar.  I then entertain myself by reading the economic history from those time periods to see if there are any similarities or any things that I might learn.

Naturally, the current Coronavirus news led me to ask my database, is the Coronavirus market of 2020 similar to the Spanish flu market of 1918?  If not, what years are similar to 2020?  Below is the chart response I received from my database.

On a statistical basis, 1918 and this year’s stock market are not particularly correlated, though both did reach a trading peak near the 31st trading day of the year.

There are four years, however, that do currently show a statistical correlation of greater than 80% to this year’s trading through March 6, 2020.

Correlated Years


The first highly correlated year-to-date performance is a different “Spanish” year– 1898. In 1898, the Dow Jones Industrial Average broke badly following the sinking of “the U.S.S. Maine” in the port of Havana. The stock market quickly recovered as the war progressed due to its quick resolution.  Here is how the scene was recorded in Reminiscences of a Stock Operator.

“The Street at that time was thinking and talking of nothing but war with Spain.  Was there to be one or not? If it was to be war the market would go down… if peace, it would be a cinch to buy stocks, as there had been considerable declines prompted by the sensational clamorings of the yellow papers.”

The yellow journalism of the late 1890s was a style of newspaper reporting that emphasized sensationalism over facts.  Sounds similar to today’s coronavirus news when compared to the data.

In my analysis of the data from John Hopkins’ dashboard related to the virus – available here – it is clear the high death rate is currently concentrated in China, Iran, Italy, and the US.  In addition, the vast majority of the US deaths are related to the nursing home infection in Washington state.  In short, the virus would appear to be affecting initial, late detection areas and the non-working age population the most – which is a very different profile than the Spanish flu of 1918.  This is not said to minimize the health impacts of the virus for older people, but economically it is the shutdown in production that is causing the market panic.


Another highly correlated year is 1966. This is another year when war drums began to be played, as the United States escalated its involvement in South Vietnam.  Unlike the Spanish American War of 1898, the escalation in Vietnam did not find a quick resolution and markets continued to weaken throughout the year.


There was also a correlation in 1926. It took me a little research to find the similarities to 2020. Through my research, I found that early 1926 was characterized by major industrial worker strikes.  Specifically, in the United States 15,000 woolen mill workers walked out in Passaic, New Jersey.  The strike was organized by the Trade Union Educational League of the Workers (Communist) Party.  It began on January 25, 1926, and it officially ended on March 1, 1927 when the mill signed an agreement with the workers.  That same year was also defined by the “The General Strike” – the largest industrial dispute in Britain’s history.  Obviously, the 1926 market felt an industrial slowdown.


The final year that seems to be correlating to our current market is 2007.  Early 2007 was characterized by a bad break in the Chinese stock market.  While the markets recovered from that break, it was an early warning of a global economy that was starting to go in reverse.

What do I make of this historical market review?

In my opinion, it is clear the recent decline is similar to the “General Strike” like conditions caused by the virus in China and global corporations’ reactions to it.  Moreover, the slowdown is being mixed with the yellow journalism so prevalent in today’s internet and political age.  The phrase yellow journalism was coined in 1890s to describe the sensational tactics used in the furious competition between two New York City newspapers, but it seems to have become a norm in today’s reporting.

While reading the financial press related to the virus and reviewing corporate reactions to it, I have found myself continually recalling the various scenes from Ayn Rand’s Atlas ShruggedAtlas Shrugged is premised upon a general strike led by John Galt. When I reviewed my notes on the book, I was struck by this passage related to Rand’s introduction of Hank Rearden – “An office building appeared, close to the tracks. The big neon sign on its roof lighted the interiors of the coaches as they went by. It said: REARDEN STEEL… Another, who was a journalist, made a note for future use in his column: ‘Hank Rearden is the kind of man who sticks his name on everything he touches. You may, from this, form your own opinion about the character of Hank Rearden.’”

The data seems to suggest that for stocks the rest of the year depends on whether there is a war or peace that ends or extends the strike.  Are we witnessing something similar to a trade war strike in the US/China situation or just World War III against a virus, or are these now one in the same? For currencies and bonds, I would point out that Atlantis, in Atlas Shrugged, utilized a banking system built on gold – something to consider when 10-year treasury bonds yield less than 1%.


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