For those who note that communications in 1906 were somewhat slower than they are in modern times, consider a more recent example: The 1973 OPEC oil embargo. For several weeks, markets all but ignored the issue, as U.S. stock markets traded sideways. Investors eventually recognized the enormity of what the embargo meant to the U.S., and stocks sold off.
The key to each of these events was not the speed of communications. Rather, it was the gradual comprehension by investors of the enormity of what occurred. Investors are emotional creatures who often react to visceral evidence, rather than relying on contemplative analysis. That may be why an act of nature like Katrina is perceived so differently than a man-made disaster, such as the Sept. 11 terrorist attacks.
The immediate reaction to what amounted to a declaration of war was a fierce selloff once the markets re-opened post Sept. 11. Katrina, while an extraordinarily strong hurricane, was merely part of the ordinary course of weather events. Comprehending the differing economic impacts -- and shifting one's viewpoint accordingly -- is hardly an easy task.
Expectations for the FutureThe impact of Katrina for investors will be felt broadly -- eventually. I expect earnings will take a hit in the fourth quarter of this year. But as the enormity of this tragedy seeps into investors' consciousness, some of the enthusiasm for risk may wane.