Wall Street’s re­sponse

Stock market has a way of over­com­ing nat­u­ral dis­as­ters, no mat­ter how big or how de­struc­tive

USA TODAY US Edition - - FRONT PAGE - Adam Shell

Market barely blinks, but the gas pump does

It’s as if stock in­vestors haven’t turned on the TV or tuned into the Weather Chan­nel over the past week.

Un­set­tling images of Houston, the na­tion’s fourth-largest city, un­der­wa­ter from Hur­ri­cane Har­vey’s tor­ren­tial rains and es­ti­mated dam­age of $160 bil­lion have not been enough to cause stock prices to sink.

Both the Dow Jones in­dus­trial av­er­age and bench­mark Stan­dard & Poor’s 500 stock in­dex have risen in value at the same time the storm rav­aged south­east Texas, and more re­cently south­west Louisiana. The Dow has climbed nearly 110 points since Har­vey bar­reled into Texas, and the S&P 500 has fin­ished higher four con­sec­u­tive days, nudg­ing 0.8% higher.

Ac­cuWeather es­ti­mates dam­age at $160 bil­lion, which would make it the costli­est nat­u­ral dis­as­ter in U.S. his­tory.

While a ris­ing stock market dur­ing a hur­ri­cane of this epic size might seem coun­ter­in­tu­itive, stocks have a long his­tory of weath­er­ing storms, no mat­ter how big or how de­struc­tive.

The S&P 500, for ex­am­ple, was down only 0.2% a month af­ter Hur­ri­cane Ka­t­rina, cur­rently the most-ex­pen­sive U.S. hur­ri­cane, struck New Or­leans in Au­gust 2005. It was 4% higher three months later and up 6% six months later. Sim­i­larly, af­ter fall­ing 3% in the month af­ter Sandy struck New Jersey in

Wall Street also knows that eco­nomic growth will re­bound dur­ing the “re­build­ing, re­stock­ing and re­plac­ing” phase.

Oc­to­ber 2012, the S&P 500 was 9% higher six months later.

De­spite the hu­man suf­fer­ing, “nat­u­ral dis­as­ters of­ten have sub­stan­tive lo­cal im­pact but less of a na­tional ef­fect,” To­bias Levkovich, chief U.S. eq­uity strate­gist at Cit­i­group in New York, wrote in a re­port. What’s more, he adds, these catas­tro­phes are viewed by in­vestors as “non­re­cur­ring events,” or one-time hits that won’t cause a long-last­ing drag on the over­all U.S. econ­omy or earn­ings of U.S. com­pa­nies.

An­other rea­son the market can shrug off risks as­so­ci­ated with vi­o­lent weather has a lot to do with the size of the econ­omy and stock market. The es­ti­mated size of the econ­omy is be­tween $18 tril­lion and $19 tril­lion, which means dam­age to­tal­ing $160 bil­lion can be ab­sorbed, says Karyn Ca­vanaugh, se­nior market strate­gist at Voya In­vest­ment Man­age­ment.

Sim­i­larly, the cur­rent market value of all 500 com­pa­nies in the S&P 500 is now $22.7 tril­lion, adds Howard Sil­verblatt, se­nior in­dex an­a­lyst at S&P Dow Jones In­dices. Large com­pa­nies can sur­vive dis­rup­tions in re­gional sales and prof­its.

Wall Street also knows eco­nomic growth will re­bound dur­ing the “re­build­ing, re­stock­ing and re­plac­ing ” phase. Cars to­taled by wa­ter dam­age will need to be re­placed. Homes will have to be re­built and re­paired. That means sales of roof­ing ma­te­ri­als, lum­ber, win­dows, sheet rock, pumps, por­ta­ble gen­er­a­tors and paints will spike. And thou­sands will be put back to work.

Har­vey also hit at a time of strength for both the broader U.S. econ­omy and for­eign economies. The U.S. gov­ern­ment upped its es­ti­mate for sec­ond-quar­ter GDP Wed­nes­day to 3%. Plus, jobs re­main plen­ti­ful and con­sumer con­fi­dence is near its high­est level since the 2008 fi­nan­cial cri­sis. That strength pro­vides a buf­fer to the fall­out caused by Har­vey. Storm-stocks in­clude: uHome im­prove­ment re

tail­ers. Stocks such as Home De­pot and Lowe’s at­tract in­vestors. Lowe’s has climbed nearly 2% and Home De­pot is up 1.1% since Har­vey hit Texas last Fri­day.

uGen­er­a­tor mak­ers. When the power goes out, stocks such as Gen­erac, a maker of gen­er­a­tors that can power an en­tire home us­ing nat­u­ral gas, and Briggs & Strat­ton, the en­gine and por­ta­ble gen­er­a­tor man­u­fac­turer, see pops in their stocks.

uIn­surance stocks. Nor­mally, shares of prop­erty and ca­su­alty in­sur­ers such as All­state, Trav­el­ers and Chubb take a big hit fol­low­ing hur­ri­canes. But losses as­so­ci­ated with Har­vey are seen as be­ing smaller as most of the dam­age is due to flood­ing, which is not cov­ered un­der nor­mal home­own­ers’ poli­cies.

ERICH SCHLEGEL, GETTY IMAGES

Res­cuers from Odessa, Texas, make their way through flood­wa­ters along Eldridge Parkway in the En­ergy Cor­ri­dor of west Houston on Wed­nes­day.

BREN­DAN SMIALOWSKI, AFP/GETTY IMAGES

Shop­pers stock up on sup­plies at a Food Town gro­cery store Fri­day in Houston.

DAVID J. PHILLIP, AP

Jose Martinez works to re­move dry­wall from a home dam­aged by flood­wa­ters in Houston.

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