Submitted by
Sizemore
Investment Letter
as part of our
contributors
program
The New York Stock Exchange and other major U.S. markets are
scheduled to reopen Wednesday after a two day hiatus-the first
multi-day weather-related closure since the blizzard of 1888 and
the first unscheduled closure since the September 11, 2011 terror
attacks.
With much of the East Coast a wreck, what should we expect when
trading resumes tomorrow?
Expect a wild ride. Investors have a lot of information to
digest, and two days' worth of pent-up trading to do.
First to consider are the direct costs of the storm-the obvious
damage done to homes, businesses and infrastructure of the Eastern
seaboard. Early estimates run the gamut. Corelogic
estimates that 284,000 homes valued at $88 billion were at risk,
but this is a worst-case scenario. Morgan Stanley
estimates losses in the range of $5 billion to $10 billion to be
picked up by insurance companies (as a point of reference,
Hurricanes Irene and Katrina had insured losses of $7 billion and
$62 billion, respectively). Uninsured losses are harder to
estimate but are significant to the households and businesses
affected.
But more significant than the direct costs-which are largely
offset by insurance proceeds-are the indirect costs of lost
business and the psychological trauma to consumer confidence.
There are new TVs not purchased, flights not taken and restaurant
meals not eaten by the 60 million Americans affected, let alone
wages and tips not paid by those who miss work. These are
impossible to accurately gauge, but estimates are in the
ballpark of $10 billion per day. Depending on how long it
takes to get New York's subway back on line, that number could get
a lot higher or the length of time could be stretch a lot
longer.
All of this brings us back to the stock market. What
should we expect when the market opens?
Over the next week, I expect stocks to drift lower in choppy
trading as hurricane news continues to roll in. Insurance
stocks and construction related stocks will see the most
speculation.
But ultimately, I expect investor preoccupation to shift
relatively quickly back to earnings, the U.S. presidential election
and the looming fiscal cliff. Natural disasters-even big
ones-usually do not correspond to major market shifts. They
create a lot of speculation and volatility in the immediate term,
but the market generally gets back to whatever trend was in place
before the disaster hit.
In our case today, U.S. stocks were going through a mild
correction after a spectacular bull run. By next week, I
expect that we will be back to business as usual.
In the meantime, use any volatility as an opportunity to add to
your core holdings. If you liked it before as a long-term
holding, chances are good that nothing has changed. I am
particularly looking for any weakness in high-end consumer
stocks. I see no lasting effects on luxury demand and advise
buying on any dips. Some names to consider: luxury goods
sellers
Coach (NYSE:
$ COH
)
and
LVMH (Pink: LVMUY)
and luxury automaker
Daimler (Pink: DDAIF).
Again, not to make light of Frankenstorm or its aftermath; Sandy
will make herself felt when GDP results are announced for the
fourth quarter. And the damage done is a major destruction of
national wealth.
But fixing the damage and rebuilding will also be a source of
growth over the next year and a much-needed jolt to the
economy.
For now, it's a matter of waiting for the flood waters to
recede.
The post When the Market Reopens: What to Expect After Hurricane
Sandy appeared first on Sizemore Insights.
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