Ebola Returns To Headlines: Could Fear Of A New Outbreak Become A Trigger For Stock Market Declines?

The World Health Organization Declares An International Health Emergency

Global stock markets continue trading near historic highs, but in recent days another factor has started increasing uncertainty across financial markets: a new Ebola outbreak in Africa.

The World Health Organization ‎(WHO)‎ recently declared the outbreak in the Democratic Republic of Congo and Uganda an international public health emergency.

According to reports, the outbreak involves the relatively rare Bundibugyo strain of Ebola, for which there is currently no approved vaccine or treatment.

In addition, hundreds of suspected cases and dozens of deaths have already been reported, while the main concern right now is the possibility of further spread to additional countries in the region.

Markets Are Beginning To Remember What Happened In 2020

Although the current situation is still very far from the coronavirus pandemic at this stage, the very use of the term “international health emergency” by the World Health Organization is beginning to attract major attention among investors and traders.

Markets clearly remember how, at the beginning of ‎2020‎, most investors initially viewed coronavirus as only a local and temporary issue before it became one of the most significant global pandemics in modern history.

Of course, this time מדובר במחלה שונה לחלוטין שאינה מתפשטת באותה קלות כמו קורונה, אך עצם הופעת הכותרות על אבולה בזמן שהשווקים נמצאים בשיאים היסטוריים מתחילה להכניס אלמנט נוסף של פחד וחוסר ודאות.

The Timing Is Important As US Indexes Already Sit Near Possible Profit Taking Zones

As we mentioned in our previous article regarding US stock indexes, both the Nasdaq and the S&P 500 are already trading near extremely stretched technical levels.

In our previous analysis, we explained that since the aggressive money printing of ‎2020‎, the indexes completed exceptionally strong bullish moves, while semiconductor and AI stocks continued pushing markets toward new highs.

In our opinion, the indexes are already trading inside a SELL ZONE and near possible profit taking areas, meaning that in such conditions sometimes a single major news trigger is enough to begin a sharp downside move.

Could A New Health Crisis Become The “Excuse” For A Market Decline?

One of the most interesting aspects of financial markets is that major declines often begin when an external event suddenly becomes the official explanation for the selloff.

When markets are already technically stretched, investors often begin searching for the reason that justifies profit taking.

In such situations, events such as wars, pandemics, geopolitical crises or strong inflation data can become the trigger that starts the move.

In addition, once declines begin, central banks and governments sometimes prefer presenting an external event as the main reason behind market weakness rather than admitting that markets themselves reached extreme valuations after years of aggressive rallies and massive money printing.

The Current Ebola Strain Is Especially Concerning For Authorities

According to the latest reports, the current outbreak is linked to the Bundibugyo strain of Ebola — a relatively rare strain that currently has no approved vaccine or treatment unlike some other Ebola variants.

In addition, cases have already been reported in Uganda and additional central urban areas, increasing concerns regarding further regional spread.

Although the World Health Organization clarified that the situation is not currently considered a global pandemic, the emergency declaration itself indicates that authorities are taking the situation very seriously.

Markets Remain Extremely Sensitive To Any Negative Trigger

Alongside the Ebola headlines, markets are also dealing with inflation concerns, discussions regarding higher interest rates for longer, volatile oil prices and geopolitical tensions across several regions of the world.

When all of these factors come together while stock indexes trade at historic highs, markets may become far more sensitive to negative news.

In our opinion, Ebola is not yet the main market story, but if headlines continue expanding and fears of wider spread increase, the event could certainly become one of the triggers increasing pressure on stock markets in the coming period.

Conclusion

The ‎WHO‎ emergency declaration regarding the Ebola outbreak arrives precisely at a time when stock markets already appear extremely stretched from a technical perspective.

Although the current situation remains far from a global pandemic similar to ‎2020‎, the combination of new health fears together with markets trading near historic highs could become another factor increasing the risk of volatility and profit taking.

In our opinion, as long as the indexes continue trading near current extreme levels, markets remain highly vulnerable to any major negative trigger.

It is important to emphasize that this article does not constitute a recommendation to buy, sell or perform any action in the financial markets. This article reflects technical analysis, personal opinion and market interpretation only.

Disclaimer: This article does not constitute investment advice, financial advice or a substitute for independent judgment. The information provided is for educational and informational purposes only. Trading financial markets involves substantial risk.