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A man reacts while looking at a stock price board in Tokyo Monday, March 14, 2011 as the Tokyo stock market plunged on its first business day after an earthquake and tsunami of epic proportions laid waste to cities along Japan's northeast coast. Only stock prices of construction and housing business show upward trend in red digits. (Eugene Hoshiko/AP/Eugene Hoshiko/AP)
A man reacts while looking at a stock price board in Tokyo Monday, March 14, 2011 as the Tokyo stock market plunged on its first business day after an earthquake and tsunami of epic proportions laid waste to cities along Japan's northeast coast. Only stock prices of construction and housing business show upward trend in red digits. (Eugene Hoshiko/AP/Eugene Hoshiko/AP)

Market Blog

How natural disasters can affect stocks Add to ...

As equity markets around the world plunge this morning due to the earthquake crisis in Japan, Desjardins Securities market strategist Ed Sollbach has crunched the numbers on eight previous natural disasters over the last two decades and found that the impact to stock markets appears to be minimal.

"The maximum decline after one week was only 1.3 per cent and after one month only 3.2 per cent," Mr. Sollbach said in a research note this morning. "The average gain was 0.7 per cent after a week and 0.7 per cent after a month."

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The energy sector was one of the best-performing sectors after a disaster, while gold stocks also did well. Insurance companies didn't do as badly as one might think. The worst loss for the TSX insurance sector was 2.1 per cent after one month, while gains averaged 1.9 per cent. There were gains in six of eight natural disasters.

What makes matters worse for markets now is that stocks are due for a correction and worries are high that the elevated price of oil will slow the global economy.

"After three months without even a small correction, Japan's earthquake is another worry for markets, but for us, elevated oil prices are a bigger concern for the North American economy and markets," Mr. Sollbach said.

Past disasters that Mr. Sollbach could study included earthquakes and cyclones, but none included a nuclear crisis of Japan's scale, which is what appears to be worry markets the most this morning.

Follow on Twitter: @ScottAdams_Edit

 

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