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Gauging the economic and market impact of the storm.
November 1, 2012
Hurricane Sandy’s fury has exacted a considerable and tragic toll. Even with the relief efforts now underway, it will be some time before things return to normal in many communities. How has Sandy impacted Main Street, Wall Street and the broader economy?
Repairing Main Street. How do you begin to total the damage from a storm affecting 20% of the U.S. population?1
EQECAT, a risk-modeling firm, thinks it could run as much as $10-$20 billion, with $5-$10 billion reflecting insured losses. This is an important distinction, as many analysts feel a tally of $10 billion or less in covered losses could have a comparably diminished effect on the insurance industry beyond the fourth quarter. However, respected University of Maryland economist Peter Morici told MarketWatch that total losses could reach $35-45 billion (or probably more) if the superstorm ultimately proves more powerful than Hurricane Irene… exactly how Sandy was being described the morning after. That would fall well short of the economic hit from Hurricane Katrina, from which the damage totaled about $108 billion; 1992’s Hurricane Andrew was responsible for roughly $60.5 billion of destruction. Federal government officials say they have about $3.6 billion ready to pay for relief efforts.1,2,7
If there is any good side to this, it is that the collective response to Sandy’s destruction may amount to an economic stimulus. MarketWatch notes that as much as $20 billion could be spent over the next 12 to 24 months on new construction, remodeling and renovation, which could further invigorate the construction industry, indirectly aid the job market, and bring about increased consumer spending.1,2
Resuming trading on Wall Street.The New York Stock Exchange’s reopened Wednesday morning after a rare two-day closing due to bad weather. NYSE Euronext tested a backup plan Tuesday morning, a plan B that would have permitted trading in case things weren’t up to speed by Halloween. In this scenario, NYSE Arca would become the primary market for New York-listed stocks – we’re talking about the NYSE’s electronic market that could operate even if its trading floor or headquarters were closed for the day.3 The last time the NY stock markets were closed for two days due to weather was in March of 1888 for the great blizzard of 1888.
What about earnings and the October jobs report?Many corporations are delaying the release of third-quarter earnings reports. Hertz, Spirit, and Waste Management will now report quarterly results on Wednesday; Pfizer, Pitney-Bowes, Ralph Lauren, Sirius XM, and TripAdvisor will follow suit Thursday; McGraw-Hill and Thomson Reuters will now report Q3 earnings on Friday. Time Warner Cable will announce Q3 results on November 5, and Office Depot is delaying issuing its Q3 results until November 6.4
“Our intention is that Friday will be business as usual,” Labor Department public affairs specialist Jennifer Kaplan told CBS News regarding the release of October’s employment report. While noting that the severity of the storm might hinder some of the report’s final calculations, Labor Department officials are hopeful that the report can be released as scheduled November 2 (at 8:30am EST).5
Fuel prices.U.S. natural gas consumption could be greatly tempered this week, and prices may move significantly. New Jersey, Pennsylvania and Delaware are home to five of the most important gasoline refineries on the east coast, but analysts feel they could rebound decently from any storm-related problems. While RBOB gas futures rose Monday as traders assumed some disruption in supplies, it appeared the bigger blip might be demand, with commuting and trucking patterns potentially thrown out of whack for days.6
As to whether drivers might see a violent spike in gas prices, the Oil Price Information Service’s Tom Kloza dismisses the notion: “My hunch is we’ll get a wobble higher in the next couple of days, and then resume [heading] lower.”6
After the stress of this superstorm, we can only hope that its economic effect will not be as severe as some anticipated. Stay safe and our thoughts go out to those who have suffered damage and losses due to the hurricane. Please call us if we can help in any way.
Sincerely,
Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA Edward J. Kohlhepp, Jr., CFP®, MBA
Please contact us whenever there are any changes to your financial situation, personal situation or investment objectives.
Citations. www.marketinglibrary.net 1 - online.wsj.com/article/SB10001424052970204840504578086290411855054.html [10/29/12] 2 - marketwatch.com/story/big-storms-rarely-dent-economy-for-long-2012-10-29 [10/29/12] 3 – www.businessweek.com/news/2012-10-29/u-dot-s-dot-stock-trading-canceled-as-new-york-girds-for-storm [10/30/12] 4 – www.cnbc.com/id/49596291 [10/29/12] 5 – www.cbsnews.com/8301-505123_162-57542196/will-hurricane-sandy-delay-the-jobs-report/ [10/29/12] 6 – www.cnbc.com/id/49596291 [10/29/12]
7 - http://www.reuters.com/article/2012/10/30/us-storm-sandy-insurance-idUSBRE89T0WT20121030[10/30/12] |
