Re­silience in the face of Ebola

Financial Mirror (Cyprus) - - FRONT PAGE -

Th­ese past cou­ple of months have been an in­tensely fear­ful time in the USA, with four cases of Ebola di­ag­nosed last month, for the first time in the coun­try. The pub­lic are on the look­out for symp­toms of the highly con­ta­gious dis­ease, in­clud­ing vom­it­ing, bleed­ing, and fever, and there is still no cure. For 70 per­cent of those in­fected thus far, the re­sult has been death.

In re­ac­tion to the Ebola scare in the US, fi­nan­cial an­a­lysts across the globe spec­u­lated that the fear­ful Amer­i­can pub­lic would ab­stain from vis­it­ing pub­lic places as much as pos­si­ble. It is com­monly stated that at the heart of any econ­omy is con­sumer con­fi­dence. When con­sumer con­fi­dence is down, it usu­ally cre­ates a domino ef­fect on the rest of the econ­omy, first af­fect­ing rev­enues, and fur­ther down the line, forc­ing CEOs to turn to lay­offs.

In­deed, by mid-Oc­to­ber the sit­u­a­tion seemed bleak. Stock of the Walt Dis­ney Company fell down to 82, and con­sumer fear all across the board only seemed to be spread­ing ex­po­nen­tially. But, then some­thing funny hap­pened. The USD started to strengthen, and this time around, it had noth­ing to do with a Fed­eral Re­serve state­ment, or a Janet Yellen speech. This past Fri­day, the S&P 500 closed at 2,018.05, set­ting a new record clos­ing-price, while the dol­lar in­dex, a mea­sure of the USD against six ma­jor cur­ren­cies, rose to 86.886, a 0.86% in­crease.

This time around, the re­deem­ing fac­tor for the US econ­omy was earn­ings sea­son. The third quar­ter of 2013 has re­vealed spec­tac­u­lar num­bers from Amer­i­can com­pa­nies. When you look at the wide va­ri­ety of com­pa­nies in the US that are far ex­ceed­ing ex­pec­ta­tions, it be­comes quite clear how the USD is do­ing so well. Those who have only been fol­low­ing the big names might have got­ten the wrong im­pres­sion. While Ap­ple’s and Texas In­stru­ments’ re­ports were stel­lar, Face­book, Google, and Twit­ter all ex­pe­ri­enced sell­offs in re­ac­tion to their earn­ings re­ports. That be­ing said, a quick look at the in­dices charts re­veals the real trend. In the two weeks lead­ing up to Fri­day, the DOW climbed 9%, the S&P 10%, and the NAS­DAQ 11%.

Prior to the spike there was a sell­off of Amer­i­can com­pa­nies due to Ebola scares, but those fears ca­su­ally slipped into the back­ground when rev­enues and growth rates came in strong on earn­ings re­ports.

The les­son here? When an­a­lyz­ing cur­ren­cies, and the strength of a given econ­omy, it’s im­por­tant to take into ac­count more than just the top head­lines. In the past month, Face­book earn­ings was not what brought about the USD’s climb. Nor can the climb be at­trib­uted to the of­ten over-hyped an­nounce­ments of Amer­ica’s Cen­tral Bank. The big x-fac­tor this past month was the CEO’s of the S&P, DOW, and NAS­DAQ com­pa­nies. They sym­bol­ize the courage of the Amer­i­can pub­lic, who dis­cov­ered their re­silience in the face of the Ebola scare. From Oc­to­ber 16th to Oc­to­ber 31st, Dis­ney stock made a come­back from $82 per share to $91 per share. And when Mickey smiles, the whole world smiles with him.

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