Why stocks shrugged off a plague scare

Happy Sunday.

I did not plan on writing the word plague in a stock market letter this year. But here we are.

A lab worker died in Siberia, the headlines said plague, and a lot of people flinched. Kazakhstan started health checks at its border with Russia. Washington sent Moscow a formal demand for answers. And on Tuesday, the S&P 500 closed at a record 7,818.

Six years after Covid, one death on the other side of the planet and the old reflexes kicked right back in. Except on Wall Street. Stocks finished the week up 1.2 percent. The only thing that looked nervous was the bond market, and it wasn't nervous about plague. The 10-year hit about 5.35 percent on Wednesday, the highest since 2002.

Most people are scared of the disease. Wall Street isn't scared at all, because it figures somebody will bail everyone out again like in 2020. I think both are looking at the wrong thing. The real problem is the bill. Paying for a second rescue is a lot harder now than it was in 2020.

A death in Irkutsk

On October 2, a 28-year-old researcher named Darya Shipilova died in a hospital in Shelekhov, a town outside Irkutsk in Siberia. She worked at the Irkutsk Anti-Plague Research Institute, set up under Stalin in 1934 to study the bacterium behind the Black Death.

Russia says she died of pneumonia with no known cause. Yet roughly 200 people went under medical observation, several hospitals went into quarantine, and the local aluminum plant told its workers to mask up. On October 3, local officials posted a warning telling people not to travel to Shelekhov, then quickly deleted it. That's a lot of effort for a pneumonia nobody is worried about.

Since then Moscow has denied everything it can. Its health watchdog told the WHO there's no plague case in the region, and on Thursday it called reports of a second sick employee fake. It still hasn't said what killed her.

And in a detail I couldn't make up, Irkutsk is hosting an international plague conference on October 21 and 22. Organizers say it was booked in June and has nothing to do with this.

Plague keeps a schedule

The good news is the bug. Pneumonic plague is horrifying for the person who gets it and fairly bad at becoming a pandemic.

Symptoms show up within one to three days, and people get visibly sick before they get very contagious. Catching it takes close contact with someone coughing late in the illness, and historically each case infects a little over one other person. Antibiotics work if they start within about a day of the first symptoms. The last person-to-person spread in the US was in 1924.

Covid was dangerous because it was quiet. You could feel fine, board a plane and seed a city. Plague is loud, and loud diseases are the ones contact tracing beats.

That gives this story an expiration date. She died nine days ago. If it was plague, anyone she infected would be sick by now, and no confirmed case has turned up. If a second case proves real, linked to her and resistant to antibiotics, I'll be writing you a very different letter.

A cover-up needs less than a conspiracy

The secrecy is real. Former CDC director Robert Redfield thinks the strain may have been manipulated. Trump, asked whether it was a bioweapon, said "we don't think so."

A conspiracy needs a plan. A cover-up only needs embarrassment. In 1979, anthrax leaked from a Soviet military lab in Sverdlovsk and killed dozens of people. Officials blamed bad meat, and it took until 1992 for Boris Yeltsin to admit what happened.

An accident, then a lie about the accident. That's Russia's actual record with pathogens, and it's the likeliest story here too.

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Fear has a brand

On Tuesday, Kenya confirmed its first Ebola case. A man who'd been sick for a month crossed from Congo into Uganda, flew to Nairobi and died two days later. The outbreak he came from has killed more than 4,000 people in Congo since May, and the strain behind it has no proven vaccine or treatment.

That got a fraction of the attention. One unconfirmed plague death got a formal US demand for answers and a promised Trump-Putin call. Trump wouldn't say when that call would happen, though he did point out it was Putin's birthday. Plague has the best brand in the history of fear, and headlines react to the word before the number. The S&P still set a record.

The reflex 2020 left behind

From February 19 to March 23, 2020, the S&P 500 fell 34 percent. It bottomed on March 23, the morning the Fed said it would buy bonds in whatever amounts it took. Four days later, $2.2 trillion in relief became law. By August 18 the index was at a new record. The first vaccine data came out November 9.

Read those dates again. The market recovered the whole crash three months before anyone knew a vaccine worked. Investors priced a cure for the economy, and the cure was cheap money. As far as markets were concerned, the vaccine was the Fed.

Look at who won, too. With the 10-year under one percent, the stocks whose profits sat furthest in the future gained the most, and the Nasdaq rose about 44 percent in 2020.

So investors walked out of 2020 with a reflex: outbreak, rescue, falling yields, buy tech. Markets have stopped asking how bad the next pandemic will be. They assume somebody will pay for it.

The economy that would meet the next one

Here's where things stood last time versus now. Rounded numbers, but you get the idea.

Washington spent roughly $5 trillion on Covid relief across three big bills. Doing that again starts from $40 trillion of debt and a 10-year above five percent.

On paper the Fed has more room to cut now, 375 basis points versus the 150 it used in March 2020. The catch is inflation. Cutting with prices running at 3.4 percent and an oil shock still in the pipes is a much harder sell than cutting at 2.3.

And a pandemic brings its own inflation. First comes a demand shock, as people stay home and prices fall. Then a supply shock hits, as factories close, ports jam and prices rise. Last time the second shock took about a year to show up. When it did, inflation hit 9.1 percent, and the Nasdaq lost a third of its value in 2022.

This time the supply shock is already here. On Wednesday, Shell $SHEL ( ▼ 0.02% ) said its third-quarter refining margin hit a record $42 a barrel, up from $24, because the Iran war is still squeezing fuel supply. Last month the Fed raised rates for the first time since 2023, and Wednesday's minutes showed most officials expect another hike by year end.

The best argument against me is oil. A real pandemic would crush fuel demand. In April 2020, crude futures went below zero, and a deep enough demand shock could do the Fed's job for it. Even then, the second rescue gets financed with a 10-year at five percent instead of one, and the inflation hangover starts from 3.4 instead of 2.3.

The bunker became a construction site

In 2020, big tech was the bunker. Apple $AAPL ( ▼ 1.11% ) , Microsoft $MSFT ( ▲ 2.38% ) and Alphabet $GOOGL ( ▲ 0.97% ) sat on piles of cash and didn't need the bond market. When the world shut down, money ran to them.

In 2026, big tech is a construction site.

Part of the AI buildout runs on borrowed money, and the payoff sits years out. That's where the market's fearlessness is concentrated, and it only holds up if yields fall when the scare hits.

That's the bet. In March 2020, a respiratory scare sent the 10-year below one percent for the first time ever. It doesn't always work that way. In April 2025, tariffs knocked the S&P 500 down 12 percent in four trading days, and Treasuries should have rallied. Instead the 10-year had its biggest weekly jump since 2001. I don't know which version the next scare looks like. The AI trade is priced like it'll be 2020.

Watch the 10-year on day one

Irkutsk will most likely end the way Russian accidents usually do, with a denial and a quiet conference a few weeks later. I'd still bet on the biology here, and I'm not losing sleep over Siberia.

Markets are braced for nothing, because they remember the rescue. For a portfolio, the next pandemic is mostly a test of whether the system can afford a second rescue with the 10-year above five percent.

I'm not a financial advisor and none of this is advice. When the next scare hits, I'll ignore the case count on day one and watch the 10-year. If yields fall, the old playbook still works. If yields rise while stocks fall, the market has found the fear it skipped this week, and the AI trade will feel it first.

In 2020, the vaccine was the Fed. This time the Fed is hiking.

Stay curious 😎

John

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