Analyzing stock market behavior after disasters

Good Morning CT at Nine

(WTNH)- With Hurricane Harvey and the associated historic, catastrophic flooding the area is experiencing and the country is watching in real time, financial expert Paul Schatz of Heritage Capital LLC started thinking about how the stock market (S&P 500) and insurance stocks fared during previous disasters.

Schatz says when Superstorm Sandy hit, stocks were already pulling back. They rallied for a day before falling to their ultimate lows two weeks later. From there, it was straight up.

Hurricane Katrina is different story because it had two landfalls, first in Florida which people forget and then in Louisiana. Katrina was also a category 5 storm in the gulf which somewhat led to the pullback into its second landfall. Stocks opened lower on Katrina day and then rallied for two weeks before rolling over again to the final low in October. Then it was up, up and away.

With Hurricane Andrew, stocks had already been pulling back when this monster made landfall in 1992. Similar to Katrina, stocks rallied immediately for two weeks before rolling over to their ultimate lows in October before soaring again.

Today, the stock market has been in pullback mode, which has been a theme all month. It’s not really conforming to any of the previously mentioned disasters.

If any sub-sector should be impacted by disasters, you would think it would be the insurance group. Schatz looked at how the Dow Jones Insurance Index behaved around the events.

Sandy was already pulling back when it hit and continued to weaken for two more weeks before blasting off to the upside. This was basically in line with how the stock market did although a little earlier.

Reaction to Katrina was surprisingly strong as the sector did not have much downside immediately following although the S&P 500 was much stronger. And when the S&P 500 declined into October to new lows, the insurance group made a higher low, indicating possible future leadership which came to fruition through November.

For Northridge, he used the stock of Allstate. While the S&P 500 rallied and then declined, Allstate was literally straight down for several months with barely an intervening rally.

With Andrew, he used the stock of Travelers since Allstate wasn’t public yet. Similar to the S&P 500, Travelers rallied a little and then declined although it wasn’t perfect.

Today, we see that the insurance group has been under pressure for a few weeks, oddly up ticked on Friday and now is declining. If history is any guide, we should see a good buying opportunity in this sector sometime in September.

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