Quarterly Commentary
March 31, 2011
Despite the tragic events that unfolded in both Japan and the Middle East, U.S. stock prices moved sharply higher during the first quarter of 2011. The stock market, though, was not completely immune to the human suffering caused by these events. Indeed, prices at one point fell by seven percent on average from the highs reached in February. But the drop was brief with prices quickly rebounding to close out the quarter very near the previous highs for the year.
It would be easy to reason that the stock market’s muted response to such human tragedies is simply proof of Wall Street’s insensitive nature. However, it is important to remember that asset prices, ultimately, are set by economic factors.
It is estimated that the area of Japan impacted by the tsunami represents approximately five percent of Japan’s economy. Last year, U.S. exports to Japan represented just 0.4% of U.S. gross domestic product (a measure of the size of the U.S. economy.) Knowing these figures is what causes investors to conclude that the economic impact of the tsunami will be quite limited for most U.S. companies, and in turn, for the value of their stocks.