Without the news photos and the television clips, it would be hard to get an understanding of the enormous scope of the tragedy caused by Hurricane Sandy. For many, simply finding a temporary place to live has suddenly become life’s priority.
The estimated $50 billion in anticipated losses, as well, seems so large that normal logic implies there will be societal financial implications for years to come.
That may not necessarily be the case, however, and Sandy should not be a signal to avoid the stock market.
While some economists predict that the storm could reduce the nation’s economic growth by a half percentage point in the current quarter, clearly there are a number of companies that will see important upticks in their business. And the particular companies to benefit may not be all that obvious.
Consider this: A national shipping company is trying to rent fuel tanker trucks in hard hit areas where gasoline is tough to find. Is there an investment opportunity with a company that rents such equipment? What about construction equipment? Companies that manufacture batteries? Even architectural and engineering firms may see increased business resulting from the storm.
Sharp increases in economic activity are typically found after a natural disaster, with considerable funds coming from both insurers and the government. In fact, overall economic activity might just outweigh the cost of the disaster itself, although it is likely to take a number of months before it is clear.
In the near term, economic activity will take a hit. Many consumers may even reduce their holiday spending. However, the automobile that was hit by a falling tree will soon be replaced. So will the ruined appliances. And let us not forget the thousands of electric and phone company workers who have been earning mountains of overtime making storm repairs. That’s lots of extra, unanticipated, cash that will get pumped into the economy.
Companies that handle clean-up after catastrophic damage are reporting backed up phone lines because of so many calls for help. The owner of a roofing company was quoted in one newspaper saying that a “pretty bad year” suddenly is going to show a significant increase.
The Federal Emergency Management Office already has $7.5 billion to spend during the current fiscal year plus $5 billion more could be available if needed, which certainly seems likely. Interestingly, the federal government eventually allocated more than $120 billion after Hurricanes Katrina and Rita.
As for construction jobs, it is noteworthy that after Hurricane Andrew hit Florida two decades ago, Miami area job growth went from less than 1 percent annually to more than 5 percent about a year later. And in California, following the 1994 earthquake, 16,000 construction jobs were added to the area economy.
For individual investors, thoughtful portfolio review is in order. Long-term objectives must remain in the forefront. Taking advantage of investment opportunities resulting from Sandy must be a secondary consideration.
Meanwhile, for those fortunate to have profited from the recent run-up in equity prices, now would be a good time to consider donating some of those profits to the relief funds that are serving those who lost homes … and loved ones. There are many to choose from, including The Red Cross and Salvation Army — two agencies that are likely overwhelmed with the needs of those who continue to feel Sandy’s impact.
Valerie B. Dugan is a senior vice president and financial advisor in the Hartford office of Morgan Stanley Smith Barney. Reach her at 860-275-0779.
