Tsunami impact on capital markets
Posted
Sep 30 2009, 09:32 AM
by
Jon Markman
Rating:
The two major earthquakes in Samoa and Indonesia over the past day have left hundreds dead, thousands homeless and millions frightened. It's way too soon to assess the business impact on the region, but generally such devastating events end up having a surprisingly positive regional effect, in time, as affected areas are rebuilt at great expense.
The U.S. stock market reaction has been negative, in tandem with some disappointing domestic economic news, yet in time, historically, such events have led to higher markets. Working off a list of seven major earthquakes/tsunamis in the past century, shown below, Markethistory.com determined that the Dow Jones Industrials Average has tended to advance sharply over the next 30 trading days.
In six of the seven cases, the Dow rose by an average of 3.9%, and in the one other case was down just 1%. Overall, the U.S. market averaged a return of 3.2% over the next five weeks.
Following the Sumatra/Thailand event in December, 2004, the U.S. market fell 4% in the next four weeks before rallying all the way back in the fifth week. Following the 1975 incident in Hawaii, there was a big 5% drop over the next five days, according to the Markethistory.com analytics, but the market then recovered briskly and was up 6% on the 30th day.
