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 Future

The 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.

So for the second time this year, I am changing my expectations for the market for the calendar year. Back in June, I had stated that I thought the markets would rally in the second half of the year before topping out in the November/December timeframe.

That perspective remains unchanged, but my expectations of what the top might look like has shifted. What we've seen since then was a low set in May, followed by a sizable rally. The endgame for this cyclical bull now looks less and less like a blow-off top. In its stead, a more rounded top -- a grinding affair, slower, and far less dramatic than previously expected -- is increasingly likely. The markets may still reach their highs about the same time (let's call it December), but it will be a more subdued and subtle event, as the impact of Katrina makes its way into the equity markets.

This bull is now less likely to end with a bang, and more likely a whimper.
Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries, and is a member of the board of directors of Burst.com, a streaming media software company. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback; click here to send him an email.

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