Wall Street will reopen after Hurricane Sandy caused a two-day shutdown, the first time the New York Stock Exchange closed for weather since Hurricane Gloria in 1985. But experts don’t expect the market to carry on business as usual; instead they forecast the storm’s damage could cost as much as $50 billion and have rippling effects on the economy.
“There will be no Halloween costumes on the New York Stock Exchange when the market opens back up because there will be a great deal of tension just in terms of restarting the markets and making sure … trading goes smoothly,” Peter Andersen, senior portfolio manager at Boston-based Congress Asset Management, told the Boston Herald. “Other than, say, repairing their roofs, money managers have had two additional days to be thinking about portfolios and the stocks they’re in, and they may have changed their opinions in the past two days of certain stocks.”
IHS Global Insight predicted yesterday the hurricane could cost as much as $20 billion in property damage and an additional $30 billion in lost business. Short term, the firm said the storm could hurt economic growth by more than half a percent in the fourth quarter, when considering losses suffered by retailers, airlines and construction companies. Restaurants will likely see fewer diners in the short term, and factories may temporarily shut down or reduce shifts because of a temporary drop in customer demand of products.
However, economists say much of the economic loss in coming weeks will be recouped by reconstruction and repairs that will contribute to growth as time goes by.
Generally, there’s a disruption effect and a rebuilding effect,” Mike Englund, chief economist at Action Economics, told the San Francisco Chronicle. “The disruption effect should last about a week, and the rebuilding effect the following three or four weeks. On net, the rebuilding effect exceeds the disruption effect, but only by a small amount. So we might find by the end of the fourth quarter repair would be a small positive.”
Some industries, however, will have a more difficult time recovering. Restaurants, for example, cannot necessarily rebound from two or three days of lost business. And since most homeowners policies don’t cover flood damage—and few homeowners in the northeast carry flood insurance—money that would be spent on holiday shopping, for example, may be directed toward repairs.
Citigroup analyst Oliver Chen told the Chronicle Sandy may reduce November same-store sales by as much as 3 percent, and sales could fall by as much as 40 percent in storm-affected areas during the first week of November.
Charles Watson, a research and development director at hazard-research company Kinetic Analysis Corp., told the Chronicle insured losses will total between $7 billion and $8 billion. Another $12 billion to $13 billion will be spent by cities and states to repair infrastructure, such as New York City’s subway system.
In fact, because Sandy hit such a densely populated area, the losses to public infrastructure are being compared by some to the effects of Hurricane Katrina, which devastated New Orleans in 2005. Katrina is, up until now, the most costly natural disaster ever to hit the U.S. with an estimated $41.1 billion in insured property losses.
“It kind of reminds me of Katrina, the actual wind damage from Katrina and coastal storm surge damage was easy to pull down,” Watson said. “But once you start getting water going over your protective measures and getting into your infrastructure the numbers start to go crazy.”
Sandy, which spanned 900 miles and slammed into southern New Jersey Monday night, is also likely to cause gas prices to drop further. With many roads impassable, drivers will be using less fuel. As gasoline demand decreases, pump prices are likely to follow.