The following economic awareness entry is based on short-term events and therefore should not be taken as information towards making investment decisions, which are of a long-term nature. It is only meant to provide clarity regarding current economic events, as there is often a large degree of incorrect information dispersed through the media or other sources.
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. The insurance costs of property damage due to Matthew's wind and storm surge are currently estimated to be between $4 billion and $6 billion, though those figures may rise as claims start rolling in. The chart below shows storm damage estimates for four major hurricanes since 1979. We can see that Hurricane Sandy and Hurricane Katrina dwarf Matthew in terms of overall damage.
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.
One estimate of Matthew's overall cost, including evacuations, lost revenue, and other important factors, puts the total cost at over $10 billion. 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.
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.
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
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, S&P Dow Jones Indices, and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the SPUSCIG. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
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.
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.
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.
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.
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor 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.
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.
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 Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P US Investment Grade Corporate Bond Index contains US- and foreign issued investment grade corporate bonds denominated in US dollars. The SPUSCIG launched on April 9, 2013. All information for an index prior to its launch date is back teased, 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.
Google Finance is the source for any reference to the performance of an index between two specific periods.
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.
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