Equity Clock

Impact of Unplanned Stock Market Closures

As many of you know, stock markets in the US will be closed today as a result of Hurricane Sandy.   NYSE Euronext issued the following statement:

In consultation with other exchanges and market participants, NYSE Euronext (NYX) will close its markets on Monday, Oct. 29, 2012 and pending confirmation on Tuesday, Oct. 30, 2012.  We support the consensus of the markets and the regulatory community that the dangerous conditions developing as a result of Hurricane Sandy will make it extremely difficult to ensure the safety of our people and communities, and safety must be our first priority.  We will work with the industry to determine the next steps in restoring trading as soon as the situation permits.

As a result, we will postpone our regular daily report until tomorrow and bring you this special report on the impact of unplanned closures on the stock market and the effect of hurricanes that have hit New York over the past 50 years.

Unplanned stock market closures are very rare.   The last occurrence was during the terrorist attacks of 9/11, which kept the stock exchange closed for four days.   The last weather related closure was 1996 when the NYSE closed early on January 8th due to a snowstorm.   Before today, there was only one time in the history of the NYSE that the market closed for an entire day as a result of a hurricane striking the North-East United States.   Hurricane Gloria hit New York on September 27, 1985, halting trading for one session.

Unplanned Closures

The impact of these unplanned closures can be quite mixed as investors struggle with their inability to access capital and digest the potential implications on the economy as a result of the event that forced the closure.   Following the September 11 attacks, the S&P 500 fell 11.6% during the week of September 17th when trading resumed after the 4-day lockup.   The benchmark took three weeks to get back to even, climbing back to the closing levels last seen on September 10th when the index was at 1092.   The flood of buying following the September 21 low continued through the end of the year, offering investors that had taken advantage of the downbeat conditions with gain of 18.9% by year-end.

Typically weather is the culprit behind unplanned closures of the New York Stock Exchange, however, in 1977 it was a blackout, which is said to have been caused by a number of lightning strikes in the New York area.   Trading was cancelled on the day of July 14, 1977, leaving the S&P 500 at 99.59 from the session prior.   When the market opened again on the 15th, prices climbed over a three day period, pushing the S&P 500 higher by 2.1%.   The market quickly topped out soon thereafter and continued an intermediate decline that was already in progress.

In the late 60’s, unplanned market closures seemed almost common with the “Paperwork Crisis” of 1968.   The NYSE also shut its doors for the National Day of Participation for the lunar exploration on July 21, 1969, the day man first walked on the moon.   Perhaps it was the lack of attention to the market in the days that followed, but the S&P 500 Index fell 5.76% from July 21 to July 29th, capping off a multi-month decline that began in May.   That year also had a heavy snowfall event that closed the NYSE on February 10; the market was 5.4% lower two weeks later.

Snowstorm closures are the most common weather related event impacting US stock trading, isolated to the months of January and February.   Most recent impact was in 1996 when the NYSE closed early on January 8th.   By the close of January 10th, the S&P 500 had shed 3.2% in what was otherwise a strong long-term uptrend.   The low hit two days following the snow disruption led into an intermediate-term push higher that resulted in a gain for the S&P 500 Index of 10.3% by the middle of February.

Other snow disruptions occurred on February 11 of 1994, February 6/7 of 1978, and February 12 of 1975.   The two most recent events saw market losses follow shortly thereafter, whether it be a result of the weather or otherwise.   The later event did not phase an already strong intermediate uptrend.

Hurricane Impact on the Stock Market

Most of these data points would indicate that an unplanned market closure is a negative event for equities.  The market closure in 1985 as a result of Hurricane Gloria would indicate otherwise.   On September 27, 1985, Hurricane Gloria made landfall, closing the New York stock exchange in the first Hurricane related all-day closure in the history of the NYSE.   The date that the Hurricane hit coincidentally marked the end of a summer decline in equity markets.   Equities turned higher into the end of the year, resulting in a 16.5% rally from the September low.

In the history of the stock exchange, there was one other time when trading was impacted as a result of a hurricane.   The market was forced to close early on August 9th, 1976 as a result of Hurricane Belle.   The S&P 500 index was lower by 2.1% in the two weeks that followed, recouping the losses by the beginning of September.

Other hurricanes have hit the New York area in recent history, but trading was not impacted.   These include Hurricane Irene last year, Hurricane Frances in 2004, Hurricane Isabel in 2003, Hurricane Floyd in 1999, Hurricane Bob in 1991, and Hurricane Agnes in 1972.   Each showed a an indiscernible reaction to the event, except for Bob, which was the second most expensive hurricane at the time.   The S&P 500 index sunk 3.3% in the two sessions following the formation of the storm.   However, the benchmark rebounded back to the flat-line just as fast in the days that followed.

Bottom line is that these unplanned closures can initially pose a negative impact on equity markets, but, for the most part, market declines surrounding the event have proven to be excellent buying opportunities as panic overwhelms effective trading decisions.   Although these closings may be rare events, opportunities can result if prepared for them.   Many of these unplanned closures are unavoidable, but at least the NYSE has solved the problem of having to close trading as a result of no heat on the trading floor, as was the case in 1917 and 1918.   To view the other special occurrences in which trading on the NYSE has been impacted, click here.

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