Though stocks rose Friday after statements from Federal Reserve officials, the major indexes ended the week lower amid choppy trading. For the week, the S&P 500 lost 0.96%, the Dow fell 0.56%, the NASDAQ dropped 1.48%, and the MSCI EAFE declined 1.40%.[1] 

Counting the Cost of Hurricanes

Whenever disaster strikes, people often wonder: What's all this going to cost? Though the human toll of injury and death may be incalculable, experts have gotten pretty good at estimating the economic costs of lost production and physical damage due to major storms.

According to one economist, about two-thirds of the economic losses of a hurricane are related to property damage, while one third come from economic losses.[2] The insurance costs of property damage due to Matthew's wind and storm surge are currently estimated to be between $4 and $6 billion, though those figures may rise as claims start rolling in.[3] The chart below shows storm damage estimates for four major hurricanes since 1979.[4] We can see that Hurricane Sandy and Hurricane Katrina dwarf Matthew in terms of overall damage.

Outlook Financial Group

However, Matthew is estimated to have a higher percentage of losses due to wind damage, which could have implications for insurance companies. Damage from storm-caused wind and surge is generally covered under standard homeowner's and business policies, though they are often subject to high deductibles.[5] 

One estimate of Matthew's overall cost, including evacuations, lost revenue, and other important factors, puts the total cost at over $10 billion.[6] Though that figure is a drop in the bucket of the overall U.S. economy, the localized effect of closed businesses, damaged roads, and flooding in affected areas could be devastating. Flood damage is not usually covered, and many hurricane victims don't have specialized flood insurance.[7] 

How much do disasters like Hurricane Matthew affect larger economic questions like Federal Reserve policy? We don't know how the Fed considers natural disasters, but it's likely that regional Feds like the Federal Reserve Bank of Atlanta include disaster-related figures in their reports.

Recent comments by Fed officials have left us with a cloudy picture about future interest rates. While it's clear that many Fed officials believe economic conditions are strong enough to warrant a December rate hike, Fed Chair Janet Yellen isn't so certain. In a Friday speech, she gave us some insight into the Fed's reluctance to move on interest rates, saying that anomalies in economic trends leave her inclined to run a "high-pressure economy" to reverse more of the economic damage before it becomes permanent.[8]

ECONOMIC CALENDAR:

  • Monday: Empire State Manufacturing Survey, Industrial Production
  • Tuesday: Consumer Price Index, Housing Market Index, Treasury International Capital
  • Wednesday: Housing Starts, EIA Petroleum Status Report, Beige Book
  • Thursday: Jobless Claims, Philadelphia Fed Business Outlook Survey, Existing Home Sales

HEADLINES:

September retail sales rise. Retail sales rebounded 0.6% last month, boosted by auto sales, which could be good news for the holiday shopping season.[9] 

Business inventories increase in August. Stocks of goods rose, especially among U.S. retailers, suggesting businesses might be expecting healthy demand for goods this quarter.[10] 

Consumer sentiment drops to one-year low. A measure of how optimistic Americans are about their financial prospects plummeted this month, suggesting Americans are concerned about the economy ahead of elections.[11] 

Small business confidence falls in September. A measure of confidence among American small-business owners dipped last month as declines in job openings and inventory investment declined.[12] 

 

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

 

Diversification does not guarantee profit nor is it guaranteed to protect assets. 

 

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

 

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. 

 

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896. 

 

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

 

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia. 

 

The S&P U.S. Investment Grade Corporate Bond Index contains U.S.- and foreign-issued investment-grade corporate bonds denominated in U.S. dollars. 

 

The SPUSCIG launched on April 09, 2013. All information for an index prior to its Launch Date is back-tested, based on the methodology that was in effect on the Launch Date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns.

 

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index. 

 

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

The Federal Reserve System (also known as the Federal Reserve and, informally, as the Fed) is the central banking

system of the United States. The Federal Reserve System is composed of 12 regional Reserve banks which supervise

state member banks. The Federal Reserve System controls the Federal Funds Rate (aka Fed Funds Rate), an important benchmark in financial markets used to influence the supply of money in the U.S. economy.

 

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. 

 

Past performance does not guarantee future results. 

 

You cannot invest directly in an index. 

 

Consult your financial professional before making any investment decision. 

 

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. 

 

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

[1] http://finance.yahoo.com/quote/%5EGSPC/history?period1=1475812800&period2=1476417600&interval=1d&filter=history&frequency=1d

http://finance.yahoo.com/quote/%5EDJI/history?period1=1475812800&period2=1476417600&interval=1d&filter=history&frequency=1d

http://finance.yahoo.com/quote/%5EIXIC/history?period1=1475812800&period2=1476417600&interval=1d&filter=history&frequency=1d

https://www.msci.com/end-of-day-data-search

[2] http://www.usatoday.com/story/weather/2016/10/08/hurricane-matthew-economic-damage-cost-6-billion/91783304/

[3]  http://www.usatoday.com/story/weather/2016/10/08/hurricane-matthew-economic-damage-cost-6-billion/91783304/

[4] http://www.corelogic.com/about-us/news/media-advisory-corelogic-analysis-shows-insured-property-loss-from-hurricane-matthew.aspx

[5] http://www.cnbc.com/2016/10/06/do-you-know-if-insurance-policy-covers-hurricane-damage.html

[6] http://www.foxnews.com/us/2016/10/12/closed-us-restaurants-damaged-homes-matthew-may-cost-10b.html

[7] http://www.iii.org/article/settling-insurance-claims-after-a-disaster 

http://abcnews.go.com/US/wireStory/hurricane-matthew-victims-flood-insurance-42783098

[8] http://www.cnbc.com/2016/10/14/us-markets.html

http://www.businessinsider.com/janet-yellen-speech-october-14-2016-2016-10

[9] http://www.foxbusiness.com/markets/2016/10/14/september-retail-sales-rise-0-6-as-expected.html

[10] http://www.reuters.com/article/us-usa-economy-inventories-idUSKBN12E1LC?il=0

[11] http://www.foxbusiness.com/markets/2016/10/14/consumer-sentiment-falls-unexpectedly-in-october.html

[12] http://www.foxbusiness.com/markets/2016/10/11/small-business-confidence-dips-in-september.html