How Irma Could Affect U.S. Stocks
by Matt Lampert
Updated: September 11, 2017
No matter what happens in Wall Street's session on Monday, the temptation will be to chalk it up to Hurricane Irma. As investors brace for the storm, it's prudent to contemplate if hurricanes -- or natural disasters in general -- have any reliable impact on the stock market. An examination of the data and recent history reveal a counterintuitive conclusion: They don't.
Consider Hurricane Harvey. It made landfall in Texas on Friday night, August 25. Over the subsequent weekend, the photographs that came out of Houston were sobering. Tens of billions of dollars of damage. Reports that the storm could be the costliest in U.S. history. The nation's fourth-largest city reeling. Yet the Dow gapped up on Monday's opening, and on Tuesday it closed higher than it did before the storm hit.
The last major hurricane to make landfall in the continental U.S. prior to Harvey was Wilma in 2005. The storm was part of a record-breaking hurricane season. The Dow closed up 169 points the day that the storm slammed into Florida.
Earlier in 2005, there was Hurricane Katrina. The Dow closed higher the day the hurricane struck New Orleans. The market dipped the following session and then closed at its highest level in a week the day after.
Sandy wasn't technically a "major hurricane" by meteorological standards when it made landfall in the U.S. in 2012. But that didn't stop it from doing more than $70 billion in damage across 24 states, including cutting power around New York City and flooding the city's streets and subway lines. The Dow closed essentially flat -- down less than one-tenth of one percent -- in its first trading session after the storm surge hit New York. By the following day, the market was higher than it was before the storm banged into the Big Apple.
Sometimes the market goes down when a hurricane strikes. Witness the Dow's eight-tenths of one percent slide the day of Hurricane Andrew's landfall in 1992 and its net four-tenths of one percent decline (after initially going up) in the two trading sessions after Hurricane Ivan's landfall in 2004.
Flat then up after Harvey. Up after Wilma. Up, down and then up after Katrina. Flat then up after Sandy. Down after Andrew. Up then net down after Ivan. Do you see a pattern here? You shouldn't, because there isn't one.
Susana Ferreira and Berna Karali, two researchers at the University of Georgia, found a similar stock market phenomenon when they studied another variety of natural disaster: earthquakes. They examined what stock markets did in 35 countries following 177 earthquakes over a four-decade span. They concluded that there was "no systematic impact of earthquakes on aggregate stock market indices, either directly or through the control variables."
Natural disasters can cause devastation, flood streets and homes, displace thousands of people and shut down cities. Yet they have no reliable effect on the stock market.
The market could go up, down or sideways on Monday. But history tells us that the hurricane will have nothing to do with it.
YOU Can Become a Truly Prepared Investor.
You Can Understand What Really Moves Markets.
You Can Make Decisions Based on A Solid, Tested Foundation.
You Can Survive and Prosper in the Face of Hurricanes, Hydrogen Bombs and Hellacious Headlines.
The market rewards investors who understand market dynamics and stay alert: Our new Financial Forecast Service bundle equips you to do exactly that.
Here's what we can help you do.
Reset Your Thinking By Understanding True Market Dynamics
You start by receiving a copy of Robert Prechter's new book, The Socionomic Theory of Finance. Thirteen years in the making, STF exposes layers of flawed assumptions and offers you a new approach. The book is jaw-dropping and, at times, an uncomfortable read. STF uses history to painstakingly challenge beliefs. It shows what actually happens in the markets. It does so fearlessly, taking on even the most sacred of assumptions. The book is acclaimed by academics, practitioners and investors alike as a landmark paradigm-setter. It comes in print and online editions and sells for $99. We include it free with your Financial Forecast Service bundle.
Your next step is to be sure to stay alert, on the lookout for danger and opportunity. The Financial Forecast Service equips you to do this.
Your Financial Forecast Service Team Helps Put YOU in Control of the Market’s Trends and Turns
Your Financial Forecast Service guides -- three of the best-known market analysts in the world:
- 1. Robert Prechter, Author of 16 market-related books, New York Times Best-Selling Author and Editor of Elliott Wave Theorist
- 2. Steven Hochberg, Editor of the Short Term Update and Co-editor of The Elliott Wave Financial Forecast
- 3. Peter Kendall, Author of The Mania Chronicles and Co-editor of The Elliott Wave Financial Forecast
As featured in:
Get The Socionomic Theory of Finance FREE with your subscription to the Financial Forecast Service.
45 Days of the Financial Forecast Service
+ The Socionomic Theory of Finance
and save 35%
Get the digital version of this ground-breaking book FREE
with 45 days of our flagship Financial Forecast Service.