Jack Naudi: Natural Catastrophes Could Hurt Economy
A powerful earthquake rocked San Francisco nearly a century ago, leveling thousands of houses and businesses.
It was a natural catastrophe unlike any other up to that point. Yet the Dow Jones industrial average, created a decade earlier, barely budged. At least not then.
But some financial historians say the earthquake had a devastating effect on the U.S. stock market over the next two years, and they warn of a repeat now.
With Hurricane Katrina ripping a small hole in the U.S. economy, stock and bond investors need to ask themselves: Should I worry?
Can catastrophic events move markets?
The most common answer among financial experts and financial historians has been a qualified no.
"Even if you look at Sept. 11 (2001), the market got completely clobbered for about two days and then recovered," said Charles Geisst, a professor of economics and finance at Manhattan College in New York City.
Geisst, who has written several books on the history of stock markets, hews to conventional thinking that disasters usually aren't big enough by themselves to cause investors much concern.
To shake a market, an event must have "a clear, long-term impact (on the economy)," Geisst said. "And most of them don't."
John Prestbo, editor and executive director at Dow Jones Indexes, which picks the Dow Jones industrial average companies, said he is unaware of a single event that has had a long-term impact on the stock market.
"The effects of these things do disappear rapidly, and the basic fundamentals take over again," Prestbo said.
Indeed, savvy investors can find opportunities in the typical short-term downdrafts that occur immediately after a catastrophe, said Joe Terril, president of Terril & Co., a Des Peres investment management firm.
"People act on emotion rather than really thinking it through entirely," he said. "I'm not hoping they will, but if they do overreact, it gives me an opportunity."
[Editor's Note: The original piece is much longer. Please see the St. Lousi Post-Dispatch for more.]
It was a natural catastrophe unlike any other up to that point. Yet the Dow Jones industrial average, created a decade earlier, barely budged. At least not then.
But some financial historians say the earthquake had a devastating effect on the U.S. stock market over the next two years, and they warn of a repeat now.
With Hurricane Katrina ripping a small hole in the U.S. economy, stock and bond investors need to ask themselves: Should I worry?
Can catastrophic events move markets?
The most common answer among financial experts and financial historians has been a qualified no.
"Even if you look at Sept. 11 (2001), the market got completely clobbered for about two days and then recovered," said Charles Geisst, a professor of economics and finance at Manhattan College in New York City.
Geisst, who has written several books on the history of stock markets, hews to conventional thinking that disasters usually aren't big enough by themselves to cause investors much concern.
To shake a market, an event must have "a clear, long-term impact (on the economy)," Geisst said. "And most of them don't."
John Prestbo, editor and executive director at Dow Jones Indexes, which picks the Dow Jones industrial average companies, said he is unaware of a single event that has had a long-term impact on the stock market.
"The effects of these things do disappear rapidly, and the basic fundamentals take over again," Prestbo said.
Indeed, savvy investors can find opportunities in the typical short-term downdrafts that occur immediately after a catastrophe, said Joe Terril, president of Terril & Co., a Des Peres investment management firm.
"People act on emotion rather than really thinking it through entirely," he said. "I'm not hoping they will, but if they do overreact, it gives me an opportunity."
[Editor's Note: The original piece is much longer. Please see the St. Lousi Post-Dispatch for more.]