From Loss Comes Gains

11/05/2012 7:00 am EST

Focus: MARKETS

Genia Turanova

Editor, Leeb Income Performance

Digging out from the monster storm that hit the Northeast earlier in the week has been a hard slog, but even through this, there appears to be a glimmer of hope that things are improving in the markets, observes Genia Turanova of Leeb Income Performance.

The aftermath of Hurricane—really Superstorm—Sandy will be felt for a long time to come. The devastation it brought is apparent, from widespread property damage to nearly halting all activity in New York to, sadly, the loss of life.

Trading in stocks was interrupted as well, with US markets closed for an unprecedented two days. Indeed, economic activity as well as the daily lives of 60 million people have been impacted.

And yet life goes on. Now that trading has resumed, some of the discussion has moved to determining what kind of a long-term impact this tragic and disruptive storm will have on the economy.

First estimates range from a 0.2% to 0.6% hit to GDP, a figure that could increase with time. These are big numbers: the most recent data for US GDP growth showed that our economy was expanding at a modest (although estimate-beating) rate of 2%.

On the bright side, the spending from repairing the damage across the affected region, which encompasses 60 million people and about 25% of the country’s economy, is also expected to mitigate a portion of Congress’ impending sequestration (the so-called fiscal cliff) in the early part of next year.

Also, several reports out lately indicate that the economy is slowly, but surely, improving. Most important of these is the housing sector, where prices have risen 2% above year-ago levels.

As consumers feel increasingly confident the value of their homes is once again rising they’ll be more inclined to open their wallets for long-deferred purchases. This can already be seen in consumer spending, which rose by a better-than-expected 0.8% in September, following a 0.5% gain the prior month.

More data shows that, prior to Sandy, the economy and the labor market continued to heal as manufacturing expanded at a faster pace than was expected. Of course, the recovery is still uncertain, as the number of planned layoffs has jumped. However, a good jobs number has the potential to further solidify improving consumer sentiment.

Regardless, stocks are still acting well, and we advise staying the course of investing in quality companies for income and growth.

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