A Market-Oriented Look at a Difficult Storm Season

Hurricanes Helene and Milton made landfalls in quick succession, understandably attracting vast attention. The loss of life, injuries and property damage are tragic. First and foremost, our hearts and thoughts are with those suffering. Markets are cold-hearted, though, and despite hundreds of fatalities and billions in losses and lost business, stocks are making new highs. Why don’t natural disasters hit stocks more? Let us explore.

Early worst-case-scenario damage estimates suggested Helene, America’s second-deadliest hurricane, could cost $250 billion and Milton $175 billion in total economic losses (property and infrastructure damage plus lost commerce).^[i] 2005’s Katrina—the US’s deadliest and costliest—was $125 billion, not adjusted for inflation. In today’s (nominal) dollars, that equates to $200 billion.^[ii] But that didn’t cause a recession or bear market then, even though the US economy was much smaller. Neither did 2017’s costliest hurricane season in history, with around $300 billion of property destruction that year.^[iii]

Obviously, the local societal burden is huge. The latest insured-loss estimates put Helene and Milton combined between $35 billion and $55 billion, which is far lower than property damage assessments.^[iv] The uninsured and underinsured losses will no doubt place great hardship on those affected. Rebuilding will take time, and communities may be forever changed.

Yet markets tend to see through these human, sociological factors and do the cold, hard math. In this case, annualized nominal GDP is running at just over $29 trillion through Q2.^[v] The worst-case initial estimates of economic loss this year are about 1.5% of GDP, but this overstates the actual effect on output. GDP is the flow of all economic activity—money spent and invested. Infrastructure and property losses don't factor here. The actual immediate effect would be the loss of all commerce that didn’t happen because of the storms, both while everyone hunkered down and in the aftermath as damaged businesses remained shut. This cost is much harder to tally, but it is the minority of the economic loss. For example, Moody’s Analytics estimates $70 billion in property damage and $15 billion of economic output loss from Milton.^[vi] The actual GDP shortfall from lost commerce is much smaller than what damage estimates imply.

Some will inevitably point out that ruined property and infrastructure will require new spending and investment to replace, which will count toward future GDP. Mathematically, this is true, but this isn’t stimulus, contrary to common claims in the wake of disasters. Replacing broken windows and the like represents very real opportunity costs. Money going to repairs isn’t going to what it would have been spent on and invested in otherwise. The spending is redirected, not created.

The reality for markets is a hurricane is a one-time event (which, yes, may be repeated over the season’s course), and that has never been a huge disruption to Corporate America’s ability to deliver profit growth over the next 3 – 30 months. Stocks are almost always laser focused on likely earnings hits, in our view. However, if the overall effect is temporary, limited geographically and unlikely to cripple the US economy as a whole, its sway on stocks is minimal.

Markets aren’t ignoring hurricanes. They are well aware of the many headlines and heavy coverage of their aftereffects. Forward-looking stocks price them in real-time as new information emerges and events unfold.

For example, Property & Casualty Insurance is arguably the stock industry group most directly affected by hurricanes. Although short-term moves can occur for any or no reason, and we hesitate to read much into them, as Exhibit 1 shows, it dropped -4.3% on October 7—when Milton was upgraded to a Category 5 hurricane—presumably given the possible earnings hit (or sentiment surrounding that). But with Milton subsequently downgraded to Category 3 on October 9 as it made landfall last Wednesday night, Property & Casualty Insurers are almost back to even in the aftermath. We see this as markets’ normal pricing mechanism at work—business as usual, not a bear market wallop.

Exhibit 1: Hurricane Season Hasn’t Hit Stocks Materially

Source: FactSet, as of 10/15/2024. S&P 500 and S&P 500 Property & Casualty Insurance total returns, 12/31/2023 – 10/14/2024.

Natural disasters are inherently scary and can be horrible for those affected. When your mind shifts to hurricanes like Helene and Milton, it is there—on the human strife—we should all be focused. Given the lack of market effects from such events, investors have little reason to do otherwise.