It looks at both the long term impact of Katrina, and also explains why the market has been moving higher despite the bad news.
Here is the ubiq-cerpt™:
"Yet at the same time, the market’s internals and technicals have been quite healthy. This explains in part why the markets have proven so resilient lately. In the weeks leading up to Katrina, both the Dow and Nasdaq were making higher lows. The Nasdaq held critical support recently and bounced off of it. Redwood Technimentals Chief Strategist Kevin Lane notes, "It is hard to envision a harsh sell-off while the NYSE Composite Index is making new highs. All this recent activity suggests to us that we may be able to challenge the upper end of the range again." This despite the long-term economic damage Katrina has wrought.
How do we reconcile these two apparently opposed factors? Consider them over differing timelines: There is an increasing danger of economic deterioration over the longer term (12-24 months). In the shorter term (one to three months), the markets have enough strength to power higher."
In other words, different market influences will have their impact felt across very differing time frames.
Here’s my list, from longest to shortest:
Monetary Policy (Interest Rates, Taxes, Money Supply)
Note that there are various aspects of each of these that can impact each other at times. For example, I have noted on several different occasions that markets can apply a different P/E mulitple to stocks at different times. The 1982-2000 rally started at a S&P500 P/E of 7, and ended at nearly 30. Clearly, pschology/sentiment plays a key role in this. Otherwise, why would a Dollar of earnings be worth only $7 in ’82, but worth 4X that amount later?
Ignore the Pundits — Katrina Will Hurt
RealMoney.com, 9/9/2005 10:41 AM EDT