As fears grew about a deadly outbreak of swine flu, investors on Monday performed the financial equivalent of washing their hands and donning surgical masks. They bought heavily into drug stocks, spurned the Mexican peso and shied away from pork producers.
Broader stock markets, which trembled in early trading, were up moderately at 11 a.m. as investors watched to see how far the cases of swine flu would spread, and whether concerns about a pandemic were exaggerated or legitimate. The rash of cases began in Mexico and has spread to the United States and Canada, and probable infections have been reported from New Zealand to Spain.
The Dow Jones industrial average was 30 points higher while the broader Standard & Poor’s 500-stock index was up slightly, after a week of light losses for the major stock indexes. Markets in Europe were headed higher in late trading, while Asian markets were mixed.
American-traded shares of the European companies GlaxoSmithKline and Roche Holding, which make various prescription flu drugs, were all higher — – a sign that investors are betting they will find big new sources of sales as governments worldwide increase their stockpiles of antiviral drugs.
Novavax, an American vaccine maker, soared 75 percent Friday in New York, though it was not clear if that movement reflected anything more than a rush by investors into any stock that might conceivably gain from the epidemic. It rose another 130 percent Monday in early trading.
“We’ve seen these kind of effects with outbreaks before,” Richard Purkiss, a drug sector analyst at Atlantic Securities in London, said. “Generally speaking, you get a rally in stocks that have any kind of links to influenza.” Airline and travel companies fell sharply as the European Union urged Europeans not to travel to the United States, where some 20 cases of swine flu have been confirmed, including eight in New York City, one of the biggest travel hubs and tourist destinations in the country.
Shares of Continental, Delta and the parent companies of American Airlines and United Air Lines were all down by double digits. The huge cruise operator Carnival fell 8 percent on worries about the outbreak’s potential effect on tourism to Mexico and other destinations.
Companies that make pork products and slaughter hogs were also hurting. Hormel, the maker of Spam, and the pork producer Smithfield Foods fell after countries including Lebanon, Thailand and Indonesia imposed restrictions on pork imports, raising fears that countries would hastily build trade barriers as they rush to contain the disease.
On Sunday, top American health officials tried to tamp down those fears, reminding people that they cannot contract swine flu by eating pork.
The price of longer-term Treasury debt rose, a sign of more defensive behavior by investors. The yield on the benchmark 10-year note, which moves in the opposite direction of price, fell to 2.94 percent from nearly 3 percent late Friday.
“The swine flu outbreak is another watershed event for the U.S. treasury market,” Tom DiGaloma, head of United States rates trading at Guggenheim Capital, wrote in a note to investors.
But declines in the United States turned into a rout in Mexico, the epicenter of the outbreak, where more than 100 people have died and more than 1,300 have likely been infected. The Mexican Bolsa stock index tumbled nearly 4 percent, and shares of Mexican food companies, retailers and transportation companies dropped sharply.
Elsewhere in financial markets, investors pushed shares of General Motors nearly 25 percent higher after the beleaguered automaker said it needed an additional $11 billion from the government and was prepared to file for bankruptcy if a proposed exchange of debt for equity did not pan out.
General Motors said it was also planning to close more plants and dealerships and eliminate its Pontiac brand as it tries to turn itself around and end quarter after quarter of billion-dollar losses. Shares of Ford, which has not taken any government bailout money, were up 5 percent.