Is Ebola a Black Swan for the Stock Market?

There is a non-zero probability that  fallout from the current Ebola outbreak will crush world stock markets in the next few months. I have no idea what that probability actually is. Maybe the chance is incredibly small and perhaps the risk is large. The experts do not appear to have a clue either.

My stock market models focus on changes to the real economy and would probably be blind to the onset of a panic-based market crash. Investor feelings are not part of the models. These econometric models, however, probably would foresee a later stock market crash that might arise in the small chance that the virus outbreak eventually destroys the world economy. Now that's a cheery thought.

According to published reports the Ebola virus outbreak in West Africa began with one person last March and now, roughly half a year later, it has spread to an estimated 5,800 people.  So far, most of the world and certainly the stock market have brushed this off as a minor event.  Today in a major policy address to the United Nations the President of the U.S. emphasized the seriousness of the current Ebola outbreak.  This emphasis was scarcely mentioned in press reports and the stock market was up nicely for the day.

By January 20 the United States Center for Disease Control gives a best case estimate that the Ebola disease will affect 11,000 people, and in the worst case estimate the disease will devastate 1.4 million people by mid-January. Currently, 70% of those infected die from Ebola.

In the highly unlikely event that the worst case scenario further develops unchecked, (a one-to-one-million yearly growth rate) the entire population of the Earth would be affected in the following year. In the current best case scenario, Ebola would become endemic and would saddle the world economy with significant costs for the foreseeable future entailed by efforts to prevent infection and ameliorate the disease.

It seems to me that between now and January the world will see if the best or worse case scenario is developing.

Almost nobody reads this blog. That is fine with me.  But, should a well-read market commentator write a panic article about Ebola -- Watch out!  Stock market valuations are lofty and there is plenty of room to fall. The market reaction from a national fear story could be sudden and severe. No commentator will want to bear the responsibility of being the first to panic. Should one signal fear a stampede could follow.