By Sara Lepro -- AP Business Writer
NEW YORK (AP) — As if the banking crisis and the recession haven't wreaked enough havoc on your 401(k), the swine flu outbreak has the potential to increase your losses. Markets around the world have fallen this week as investors fear fallout from the virus could further weaken the already struggling global economy.
The virus is suspected in more than 150 deaths, all in Mexico, and some 2,000 infections, mostly in North America.
The World Health Organization has raised its global alert level, moving closer to declaring a flu pandemic as cases are diagnosed in Europe and the Middle East.
Here in the U.S., Federal Reserve policymakers are weighing whether additional steps are needed to brace the economy as an outbreak of the swine flu has emerged as a potential new danger that could aggravate the recession.
The flu outbreak, which started in Mexico and has spread to the United States and elsewhere, could force U.S. consumers to retrench further. That would deal a blow to the domestic economy, which has flashed some signs the recession could be letting up a bit.
With the magnitude of the outbreak still uncertain, analysts are advising investors to be both cautious and vigilant for now. Here are answers to some questions about the swine flu and your portfolio.
Q: What impact will the swine flu have on the market?
A: Some individual stocks or industries might be affected more than others, such as airlines, leisure and even retailing as people forgo travel and stay at home. However, the impact on the overall market will likely be minimal and short-lived, analysts said, pointing to the SARS (severe acute respiratory syndrome) outbreak in 2003 as the most recent example of a health scare.
According to an analysis by Thomas Lee, chief U.S. equity strategist at J.P. Morgan Securities, the Dow Jones industrial average and the Standard & Poor's 500 index fell 2 percent in February of that year at the height of the SARS scare.
But by April, those losses vanished. For the February to April period, the Dow gained 7 percent and the S&P 500 rose 9 percent. And it was not until June that the last new SARS case was reported, he said.
However, emerging markets, like those in Hong Kong, India, Venezuela and Argentina, suffered more than U.S. stock markets during that time. With the swine flu originating in Mexico, that market could take a significant hit, analysts said.
Q: With the global economy already so fragile, could the swine flu derail a recovery?
A: The U.S. economy is certainly more vulnerable now than during the SARS outbreak in 2003. But unlike the SARS epidemic, there is a known treatment for the swine flu, which makes the probability of the outbreak becoming a global crisis less likely, analysts said.
Tamiflu and Relenza are two anti-viral medications that are being recommended.
"While the causes of the spread of the swine flu virus have not been determined (and indeed seem enigmatic), it appears unlikely that the backlash will be as severe as the SARS-like epidemic that hit Hong Kong in 2003 given that swine flu appears far more treatable," wrote Citi Investment Research analyst Tobias Levkovich in a research note.
Q: If people are afraid to travel, should I trade in my airline stocks and buy pharmaceuticals instead?
A: Not necessarily. Certainly, health care stocks could benefit, while travel-related and other economically sensitive stocks could suffer in the near future. But for long-term investors, analysts warn against making any bold, sweeping changes to a portfolio, and instead advise putting a few extra hedges in place to protect against potential losses.
"The downside to overreaction is less than the downside to underreaction, but that's not saying sell everything," said Randy Frederick, director of trading and derivatives at Charles Schwab. "If you're a little concerned, go out and put on a hedge."
Q: Does this outbreak present any good — or bad — investment opportunities?
A: The major stock indexes have surged more than 20 percent from 12-year lows hit in early March, so any pullback caused from anxiety over the swine flu could present an attractive opportunity for investors who have missed out on the recent rally.
"The SARS episode proved to be an excellent entry point for long-term investors," said JPMorgan's Lee. "Likely, this is the same opportunity."
-- AP Economics Writer Jeannine Aversa contributed to this story.
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