Hurricane Sandy - Catalyst For Recession

by: Markos Kaminis

Widespread destruction and disruption is expected across the most widely populated part of the nation, the Northeastern United States, starting this weekend. Hurricane Sandy will meet a deep arctic low cold front at the Jet Stream to perhaps generate the storm of the century for the Northeast Region of the United States. Imagine "The Perfect Storm" but over land instead of the Atlantic Ocean. Power outages are likely, tree falls should be commonplace, flooding widespread and high winds will strike areas unaccustomed to it, perhaps resulting in severe structural damage. A four to eight foot storm surge is expected as a full moon lifts tides as well. A foot of rain may fall in some areas, as high winds batter the East Coast.

Northeastern U.S. residents will not likely leave home for a day or two or more depending on how well power holds up, and so discretionary spending at Macy's (NYSE:M), Darden Restaurants (NYSE:DRI) and the like will be impacted. Though fast food providers like McDonald's (NYSE:MCD) and Yum! Brands (NYSE:YUM) and supply stores like Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST) and Sears (NASDAQ:SHLD) perhaps benefit ahead of the battle. Overall, while there will be a surge of spending for emergency items and groceries, such non-discretionary spending should be followed by a lull in shopping for similar items in the weeks that follow, leveling out the impact to the quarter.

Public sector spending will fill the pockets of emergency workers putting in overtime hours and fill up the tanks of fuel and equipment suppliers. Construction materials suppliers should benefit as well, including the likes of retailers Home Depot (NYSE:HD) and Lowe's (NYSE:LOW), and other construction materials companies like USG (NYSE:USG) and Builders FirstSource (NASDAQ:BLDR).

Still, business will come to a halt generally for a day to a week or more across a vast and important region of the U.S. That means fewer hours billed by lawyers, less frozen yogurts sold at the local shop, land bound fishermen with empty nets, unfilled barbershop chairs, and increased absenteeism across all business sectors. Thus, the net result should be a significant negative impact to fourth quarter GDP, and perhaps a catalyst for recession, given the vulnerable state of the economy. The broader markets have not had an opportunity to price in this quickly developing event, and so the SPDR S&P 500 ETF (NYSEARCA:SPY) could take a hit next week as well, which strikes at the pockets of all Americans. Yes, Hurricane Sandy, potentially the storm of the century for the Northeast, could be a catalyst for recession.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.