Storm Chasers

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Last Week’s S&P 500 Index: -1.5%

The phone is already ringing.  The questions are being asked.  Even though the U.S. stock market is still closed at this point due to Hurricane Sandy and her aftermath, some investors are looking for opportunities in the devastation.  Those with more trading-oriented mentalities in particular want to know what sectors or industry groups might benefit from either the cleanup or the rebuilding efforts.

Clearly, some companies will benefit from the cleanup process and others will see increased revenues from the rebuilding process.  In the short term, companies selling emergency supplies like plywood, plastic tarps, batteries and mops will likely see increased business as those affected by Sandy readied themselves and now try to deal with the aftermath of the deadly storm.  But these products tend to be low margin, less profitable items for home improvement retailers.  Other businesses, like restaurants, may be negatively impacted as their locations shut down due to loss of electricity, flooding or other types of damage.

Most preliminary estimates of the damages appear to be in the $10-$20 billion dollar range but we have seen predictions as high as $100 billion.  As a reference point, the National Oceanic and Atmospheric Administration (NOAA), a governmental organization housed within the Commerce Department, pegged the cost of 2005′s Hurricane Katrina at $81 billion.  Much of Sandy’s damage will be covered by insurance companies.  Many businesses will be shut down for days or weeks. Some might even be closed for months.

Initially, the economic consequences of Hurricane Sandy will likely be to dampen economic activity in the affected areas.  Some sources are predicting losses in daily economic activity of close to $10 billion.  The magnitude of the effect will be hard to gauge until a better evaluation of the damage to the transportation infrastructure and power grid are reported in coming days.

But consider the fact that the size of the American economy is approximately $15 trillion.  If we assume Sandy did $100 billion in damages, that represents less than 0.7% of total annual domestic economic output.  While the devastation doled out by this massive storm has certainly been meaningful, it is unlikely that the ebb and flow of the overall economy would be impacted in a major way or for an extended period of time.

We would recommend that long-term investors stick to their plan and not try to make significant changes to their portfolios in an attempt to capture quick profits in the wake of this week’s hurricane.  The market has experienced a minor pullback over the last few weeks and could very well see more downside when trading resumes on Wednesday.  We continue to see pullbacks as opportunities to accumulate stocks in sectors sensitive to a continuation of the U.S. and global economic recovery.  Looking out over the next 12 to 15 months, we see good upside from current levels to our year-end 2013 target range for the S&P 500.

We recommend that investors seek out quality companies for long-term investment and not turn into storm chasers looking for a thrill ride in the stock market.

 

 

 

Scott Wren, Senior Equity Strategist

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Additional information available upon request. The material contained herein has been prepared from sources and data we believe to be reliable, but we make no guarantee as to its accuracy or completeness. The material is published solely for informational purposes and is not an offer to buy or sell or solicitation of an offer to buy or sell any security or investment product. Opinions and estimates are as of a certain date and subject to change without notice. You should be aware that investments can fluctuate in price, value and/or income, and you may get back less than you invested. Past performance is no guarantee of future results. CAR 1012-05568.
Investment and Insurance Products:   NOT FDIC Insured   NO Bank Guarantee   MAY Lose Value
Wells Fargo Advisors is the trade name under which Wells Fargo & Company provides brokerage services through two registered broker-dealers: Wells Fargo Advisors, LLC, Member SIPC, and Wells Fargo Advisors Financial Network, LLC, Member SIPC. Each broker-dealer is a separate non-bank affiliate of Wells Fargo & Company.
(c)2012 Wells Fargo Advisors, LLC. All rights reserved.

 

Last Week’s Market Summary: Play the Hand You are Dealt

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Last Week’s S&P 500 Index: +0.3%
 
As the markets wade through a period of uncertainty that is likely to last for at least a few more months, we want to encourage investors to take advantage of what the stock market gives them.  What do we mean by that?  We want to rely on our analysis and outlook.  That outlook helps guide the investing process and allows one to make decisions based on rational thought and analysis rather than paralyzing fear.
 
Events move at a fast pace in today’s world.  One week the U.S. stock market rallies because Spain secures a lifeline for its troubled banks and a couple of weeks later we see a big selloff as one of the bond rating agencies downgrades various Spanish “states”due to their high debt levels; as if this is something that took investors by surprise. Likewise, as third quarter earnings reporting season approaches the midway point this week, some pundits are blaming the market pullback on poor third quarter earnings results.  Whether or not earnings are up a percent or two or down two percent really is not going to affect the stock market in a major way.  Why?   Let’s be honest, strategists have been expecting a bad earnings reporting season for some time.  Companies have simply delivered on those poor expectations.  Note that overall results are in line with consensus estimates so far.

 We want to examine the current market downdraft and ask ourselves if this presents an opportunity.  Let’s review our outlook.  We look for the economy to grow 2.5% in 2013, above the rate we expect this year but still below the longer term average.  Earnings growth is also expected to be modest next year, near 5%.  Based on our earnings projection for next year, valuations are well below the longer-term average.  We look for a continuation of the economic recovery in the US and abroad.  We see Chinese economic growth bottoming near current levels and think there is a reasonable chance Europe’s debt crisis is “less bad” next year.  In addition, the Federal Reserve and virtually every major central bank on the planet is ready, willing and able to continue to provide mountains of liquidity and low interest rates to the financial system for the foreseeable future.  We think the S&P 500 is going to be noticeably higher than current levels by year-end 2013.
 
So it comes down to having faith in your outlook and executing when opportunities arise.  We have been expecting (and hoping) for an opportunity to accumulate stocks at lower levels before this year comes to an end.  The pullback in the market from the early October high has been minimal so far but could easily get a bit more interesting in coming weeks.  Hoping for more of a pullback?  Yes indeed.  We have faith in our outlook.  We like to buy stocks in favored sectors when prices are down.  As in the game of life, cards or the market, you need to play the hand you are dealt.  We have not seen all our cards at this point but the stock market appears to be dealing us a good hand.
 
 
Scott Wren, Senior Equity Strategist
 
 
 
 
 
Additional information available upon request. The material contained herein has been prepared from sources and data we believe to be reliable, but we make no guarantee as to its accuracy or completeness. The material is published solely for informational purposes and is not an offer to buy or sell or solicitation of an offer to buy or sell any security or investment product. Opinions and estimates are as of a certain date and subject to change without notice. You should be aware that investments can fluctuate in price, value and/or income, and you may get back less than you invested. Past performance is no guarantee of future results. CAR 1012-04285.
Investment and Insurance Products:   NOT FDIC Insured   NO Bank Guarantee   MAY Lose Value
Wells Fargo Advisors is the trade name under which Wells Fargo & Company provides brokerage services through two registered broker-dealers: Wells Fargo Advisors, LLC, Member SIPC, and Wells Fargo Advisors Financial Network, LLC, Member SIPC. Each broker-dealer is a separate non-bank affiliate of Wells Fargo & Company.
©2012 Wells Fargo Advisors, LLC. All rights reserved.