Well, it took your average institutional stock investor all of about four hours to digest the shock and horror of the devastation wrought by the earthquake in Japan, and start thinking about the profitable boost to economic activity that’ll occur once the Japanese are done burying the dead and start rebuilding.
Does that sound harsh? Of course it does, but the market operates under a cold, hard math. The fact of the matter is, stocks often get over these kinds of things long before the people who suffer from them do. They have to, because the markets hardly ever shut down. But that doesn’t mean the ramifications of the earthquake are already all known and discounted. That would be impossible, and as Simon Constable pointed out earlier, these things have a way of manifesting themselves in ways nobody right now can anticipate.
DJIA rises 60 (0.5%) to 12044, still down 1% on the week; the index is down two of the past three weeks. S&P 500 gains 9 (0.7%) to 1304, Nasdaq Comp rises 15 (0.5%) to 2716. It’s another low-volume day. Crude fell, both on the fears about lowered demand from Japan, and the fact that the much-hyped “day of rage” in Saudi Arabia didn’t amount to much. The yen also rose sharply, a sign that Japanese corporations and investors are already, or soon will be, repatriating money to the homeland for the rebuilding effort.
Markets tend to move past the shock of something like the earthquake pretty fast, and after yesterday’s sell-off a modest rebound is no surprise. Newswires’ columnist Tomi Kilgore noted that the market has a history of doing this, from the Kobe quake, to Katrina, to today.
From his column today: (subscription required)
“These types of events, they’re very sad and they’re very alarming, but they don’t have a huge impact on economic activity and momentum,” said Christian Thwaites, president and chief executive of Sentinel Investments. “They kind of distract people from their terminals but I don’t think people see them as big buying or big selling opportunities. Ultimately, they don’t stop an economy in its tracks.”
How the quake will affect Japan’s economy, and how that will affect the global economy, is the long-term question. UBS’ Art Cashin scratches the surface of the questions in his commentary this morning, and also offers a great insight into how traders react to tragedy. Hint: they’re not all computers.