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Sandy: Small blip for investors

By Sheyna Steiner · Bankrate.com
Tuesday, November 6, 2012
Posted: 4 pm ET

For some, extraneous events bring investing opportunities. For instance, with all the rebuilding and recovering to be done following Superstorm Sandy, business will be booming for many companies. Will that translate to a boom for investors in general?

Probably not. Short-term traders may be able to profit from a bump to some businesses from the increase in sales and activity. But over the long term, Sandy probably won't make much difference to investors. However, the economy may be a different story.

People who try to profit from short-term moves in the market could potentially make some money. But that's far from certain.

"If they are doing it on a day-by-day basis like day traders, my opinion is they gamble, and the odds are not in their favor," says Stephen Davis, president of Safe Harbor Asset Management in Huntington, N.Y.

Michael Masiello, president of Masiello Retirement Solutions in Rochester, N.Y., agrees.

"Would I go out and buy Home Depot based on the home improvement boom coming? If I didn't fundamentally want it on the Friday before the storm, I wouldn't buy it now," he says.

"Many people might have that view, but over time, earnings dictate stock price. It is relative to the long term of whether you own a stock," Masiello says.

Long-term investors, and maybe even short-term, are unlikely to benefit or suffer too much as a result of the storm, "unless another major storm hits soon afterward and further impacts workers," says to Michael Gayed, CFA, co-portfolio manager of the ATAC Inflation Rotation Fund (ATACX).

There are still bigger problems potentially facing the stock market such as the European recession and the so-called fiscal cliff.

Aren't disasters good for the economy?

Whether or not disasters are good or bad for the economy is a bit arguable. On the one hand, there's an explosion of economic activity as people go out to replace things that have been destroyed, and jobs are created by the cleanup.

But people who spend money today to rebuild their homes and buy new furniture or generators or pay to have trees removed don't have that money to spend elsewhere. Next month, that extra money that may have paid for gifts, vacations, new clothes or a new car is no longer hanging around. While some economists contend that disasters and wars can have a stimulative effect on the economy, the counter-argument calls that the broken-window fallacy, based on a parable written in 1850 by  French economist Frederic Bastiat.

Bastiat argued that the immediate effect of an act of vandalism -- the broken window -- would result in a sale for a local business. The unseen effect is that the owner of the window can't use that money for anything else.

"Oftentimes, it is argued that natural disasters tend to be economically damaging in the short-term given the cost of destruction, but better long-term on reconstruction efforts and upgraded infrastructure. The issue with that is that if a dollar is spent today to rebuild, that is a dollar that cannot be used for some other purchase," Gayed says.

In regard to Sandy, the stocks of businesses that will benefit from the storm clean-up could see an increase, but the stocks of retailers and other businesses that would otherwise have profited over the holidays may sink.

"If there were a legitimate discount, stocks would price in due to Sandy ... We likely would begin seeing that following Black Friday and retail sales into the holidays," Gayed says.

How do you think the storm will affect investing? What stocks would you buy based on the impact of the storm?

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1 Comment
Stephen Davis
December 05, 2012 at 11:43 am

Disclosure *Registered Representative offering securities through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. Investment advisory services offered through Safe Harbor Asset Management and is not affiliated with APFS.*