Trying to Reason with Hurricane Season: The Aftermath of "Harma"

Key Points

  • Harvey will sit on top of the costliest hurricanes, and now has Irma in its coattails.
  • Hurricanes' impact on economy tends to be felt most acutely in unemployment claims.
  • "Harma" will unlikely dent the Fed's plans to continue monetary policy normalization.

Our hearts go out to everyone affected by Harvey and now Irma. I did little over the weekend except sit glued to the TV watching Hurricane Irma coverage. That's because I have a home in Naples, FL, on one of the southern intercoastal waterways. As of the writing of this, I have no idea how our home fared. My fingers are crossed (which could lead to typos).

Of course, before Irma unleashed her wrath, Houston got battered by Harvey; and last week the questions started coming in about Harvey’s economic and/or market impact.

Needless to say, the U.S. economy is massive and diverse, making it a tricky task to "unpack" a prior natural disaster's impact for the purpose of forecasting the impact from Harvey/Irma (perhaps we should collectively call them "Harma").

Limited stock market impact likely

As you can see in the table below, more often than not, the market did not suffer sustained losses following the six costliest hurricanes in U.S. history. The one exception was in the aftermath of Hurricane Ike in 2008. Clearly though, there was another powerful storm happening at the time—the global financial crisis—which easily gets the blame for the market’s carnage.

Price change table after hurricanes

Source: Ned Davis Research, Inc. (Further distribution prohibited without prior permission. Copyright 2017© Ned Davis Research, Inc. All rights reserved.)