By now, investors must be relieved that Hurricane Sandy – while terribly devastating and disruptive to millions of people in its path – hasn’t also wrecked the U.S. economy and derailed stocks.
For sure, the impact is massive: Disaster modeling firm Eqecat Inc. (via the Wall Street Journal) estimates that the storm’s wrath caused $10-billion (U.S.) to $20-billion in insured losses, with a total cost of $30-billion to $50-billion. That means the storm could be the second most costly U.S. hurricane on record, after Hurricane Katrina – which caused $41.1-billion in insured losses when it struck in 2005.
The stock market’s reaction to both storms has been remarkably similar so far. Bespoke Investment Group said that the S&P 500 fell 1.2 per cent over the five trading days before Hurricane Katrina made landfall in 2005. In the five days after the hurricane made landfall, the S&P 500 erased those losses and continued to move higher.
In the case of Hurricane Sandy, the S&P 500 fell 1.5 per cent in the days prior to landfall. Trading was closed on Monday and Tuesday – but so far the pattern appears to be repeating: The S&P 500 is closing in on a 1 per cent gain since trading resumed on Wednesday.
Of course, there are a lot of other factors affecting stocks right now. It is debatable whether the S&P 500 fell last week because of uncertainty about Hurricane Sandy, or whether the decline was due to a disappointing third-quarter reporting season, where revenues in particular have not been living up to expectations.
Similarly, the rebound on Thursday might be mostly due to a round of upbeat economic news. China’s economy showed signs of rebounding with a gain in its purchasing managers’ index for October. And in the United States, the ADP private sector employment report showed better-than-expected job gains of 158,000 in October, factory activity topped expectations, consumer confidence hit a three-and-a-half year high and weekly initial jobless claims declined.
Still, the takeaway from Katrina and Sandy is similar: As devastating as hurricanes can be, they can’t seem to hurt the stock market.