Wall Street Restart: Where Will Investors Begin?

Investors could be trying to get back to some sense of normalcy Wednesday, but strategists say it’s going to be somewhat of a haul for Wall Street, as many traders may be tempted to sit out the next few days amid the chaos of Hurricane Sandy and its aftermath.

The devastation wreaked by the storm, the brunt of which was felt by the East Coast on Monday evening, left Wall Street shuttered for a second day Tuesday.

Exchanges are expected to open for business Wednesday, even if live trading on the floor is not possible, via the NYSE Arca systems. A contingency plan will be tested Tuesday to ensure trading resumes.

As for where those markets will trade, some strategists said it’s a tough call. “To be honest, I think it can go both ways,” said Mike Lenhoff, chief strategist at Brewin Dolphin. “Market volatility works on the upside as well as the downside, with any glitch that has the immediate impact of reducing liquidity. We could find markets fly, oddly enough and contrary to what people might expect.”

Futures for the Dow Jones Industrial Average  closed a shortened session on Wednesday up 8 points to 13,062, while those for the S&P 500 Index  closed up 3.5 points to 1,411.10. Futures for the Nasdaq 100 index   fell 3.75 points to 2,655.25.

Lenhoff said of course volumes could be very thin as many traders sit out what could be a slightly bumpy ride, something he personally recommends: “There’s no reason why you have to involve yourself immediately in something that you have no understanding of.”

He added that up to a few days ago, the market was correcting from what was a near-enough high for the year, including disappointing earnings from Apple Inc.

Earnings delays have been happening since Monday. Automatic Data Processing  and Pfizer Inc.  both postponed earnings releases for Tuesday, though Ford Motor Co.  and Archer Daniels Midland Co.  were among those who pushed theirs out.

Ford reported the best-ever third quarter, though its losses in Europe rose. Archer Daniels said its fiscal first-quarter earnings fell, owing to a sale of a Mexican unit. Overseas, earnings from BP PLC  and UBS  AG were well received, helping to cheer European markets.

The data calendar, which is subject to change, looks packed for the rest of this week, with third-quarter employment cost index and October Chicago purchasing-mangers’ index on Wednesday. Thursday reports include weekly jobless claims, third-quarter productivity, October ISM factory survey of activity, among others. Then Friday brings October nonfarm payrolls and September factory orders.

Historical precedence

The last time Wall Street closed, noted Steen Jakobsen, chief economist at Saxo Bank, was due to the Sept. 11, 2001 attacks, and most really have been closed due to geopolitical events, rather than weather. The last time a weather-related event shut the market this long was in 1888, while Hurricane Gloria shuttered markets for a day in 1985.

“On average, with very few observations, the market will be down a maximum 5%, which happened when we reopened post-9/11, but we ended the day unchanged to a small loss,” Jakobsen said.

In terms of the worst weather impact, he added, the earthquake and tsunami in Japan in March of last year knocked 17.5% off the Nikkei in March. Jakobsen doesn’t see extreme hits for the market on back of Sandy, however bad it turns out to be. “In terms of degrees of alertness and devastation, this is not a geopolitical situation like 9/11.

“The major disruption will be on power, smaller nominal demand from consumer now, but higher later, rebuilding. Net-net, my estimation is it will be slightly negative on growth short-term, but this will be caught up in Q1 as rebuilding, emergency funds are made available, maybe already in late Q4,” he commented. “The market impact should be insignificant as fiscal cliff is more pertinent.”

Jakobsen said when the market does settle down, the focus will be quickly turning to politics and the fact the U.S. presidential election is looming. “The U.S. business cycle doesn’t care who becomes president,” though it does care about the future of Federal Reserve Chairman Ben Bernanke and the possibility he may not be reappointed if Mitt Romney wins. “Obama is a safer bet” for markets, he added.

Fawad Razaqzada, market strategist at GFT Markets, said futures have U.S. markets holding up fairly well, despite the damage from Sandy. He noted early estimates on damages pointing to around $20 billion, with less than 50% having been insured and the cleanup operation likely to drag on. “Cost of repairs and lost productivity are therefore likely to haunt a number of corporates in the months ahead, while some analysts are forecasting it’ll knock as much as 0.2% off fourth-quarter GDP readings — something the U.S. economy can well do withoutWednesday’s session will be the last for the month of October, which has turned out to be a bruiser. The Dow industrials are down 2.5% for the month so far; the S&P 500 has lost 2% and the Nasdaq has fallen more than 4%.

Marketwatch