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Hurricane Harvey and Other Natural Disasters - The Effects on the Stock Market

Investments Insights

Hurricane Harvey has drenched Texas, with some areas receiving over 50 inches of water in what many are calling a 1,000-year disaster. So much rain has fallen that the National Weather Service had to update their color charts to add two new colors – and more rain is predicted to fall through the middle of the week.

Hurricane Harvey will affect all of us – Houston is the 4th largest city in the US – and FEMA estimates that flood waters will directly impact as many as 13 million people from Texas and Louisiana. There will be billions of dollars in property damage that will take decades to rebuild.

Are you wondering how the stock market reacts to natural disasters? Let’s examine a few from recent memory:

Indian Ocean Earthquake - December 26, 2004
The earthquake and the resulting tsunamis killed over 230,000 people in 14 countries, and there was very little effect on stocks. The S&P 500 hit a low-point 20 days later when it saw a 4% correction – but then it rallied by over 35% shortly thereafter, ending the year up 9%.

Haiti Earthquake - January 12, 2010
The 7.0 earthquake and its 50 aftershocks killed about 316,000 people. There was little immediate effect on stocks. The S&P closed around 7% lower 18 trading days later, but continued to rally thereafter. It ended the year up over 12%.

Hurricane Katrina - August 29, 2005
Hurricane Katrina was the costliest natural disaster in US history – but Hurricane Harvey might dethrone it. Shockingly, the S&P 500 welcomed Katrina with an eight-day, 3% rally; but, almost 40 days later, it was down 2%. The S&P 500 ended the year up 3%, so no real effect on stocks.

Japan Earthquake - March 10, 2011
A 9.0 magnitude earthquake and 100-foot high tsunami pummeled Japan and were responsible for almost 30,000 deaths and half a million people displaced. Markets around the world reacted in the short-term, and the S&P 500 was no different. This was quickly followed by a market rally where the markets ended the year almost exactly where it started.

Recommendations?

I see no reason to be making changes to investment portfolios at this time. Instead, channel your thoughts to every person in Hurricane Harvey’s path.

If you want to help those directly impacted by Hurricane Harvey through a charitable donation, let me know as there might be an opportunity to structure your gift so you receive additional tax benefits.