Hurricanes Harvey and Irma are likely to deliver a combined hit of at least $290 billion to the U.S. economy, equal to about 1.5% of annual GDP, according to estimates by AccuWeather Inc. This comes while stocks, as measured by the S&P 500 Index (SPX), are in a fragile position, essentially having traded sideways for about three months. The economic blow from Harvey and Irma will flow through to reduced corporate profits, putting further downward pressure on stocks.

Tallying the Cost

Uninsured losses from Harvey alone could exceed $200 billion, more than the costs of Hurricanes Sandy and Katrina combined, according to estimates by Fundstrat Global Advisors LLC cited by CNBC. A full accounting of the effects may not be possible until far into 2018, the Wall Street Journal indicates. AccuWeather projects the cost of Harvey to be $190 billion and that of Irma to be $100 billion.

Harvey alone will reduce third quarter U.S. GDP growth by as much as one full percentage point, according to analysis by Goldman Sachs Group Inc. (GScited by CNBC. This report was released on Saturday, a day before Irma made landfall in Florida. Goldman's analysis was based on preliminary estimates of damage and economic disruption from Harvey. Economists surveyed by the Journal are less pessimistic than Goldman, expecting that third quarter U.S. GDP growth will be lower by 0.3 percentage points, followed by no impact in the fourth quarter, and a boost of 0.2 percentage points in the first quarter of 2018.

Goldman expects third quarter economic weakness due to Harvey "to reverse over the subsequent three quarters, more than recouping the lost output," per CNBC. Similarly, the economists surveyed by the Journal do not expect lasting effects from Harvey, and thus are leaving their forecasts of GDP, unemployment, inflation and other major indicators unchanged for 2018. However, they do foresee various distortions over the next few months. (For more, see also: How to Financially Prepare for a Hurricane.)

Impact on Jobs, Inflation 

Goldman expects that Harvey may reduce employment by somewhere between 20,000 and 100,000 jobs in September, and that a hike in gasoline prices will add about 0.2 percentage points to annual headline inflation. 

Economists surveyed by the Journal forecast that there will be about 81,000 fewer jobs created in the third quarter than otherwise, that there will be little impact on the fourth quarter, but that there will be a boost of about 39,000 jobs in the first quarter of 2018, driven by rebuilding efforts.

Sector Impacts

The main short-term impacts of Harvey, Goldman says, will be felt in consumer spending, business inventories, housing and energy, per CNBC. With gasoline production and distribution interrupted by Harvey, given that Houston is a major refining center, prices have shot upward. The Journal cites research indicating that a one cent increase in the price of gasoline reduces consumer spending on other products and services by about $1 billion, and that Harvey has raised average gas prices by about 31 cents per gallon nationwide, with another 9 cent rise likely. Historically, such storm-related effects on gas price subside within a few months, the Journal says.

Housing starts in the region hit by Harvey have been delayed. When the area dries out, there will be increased competition for workers to rebuild damaged or destroyed housing and commercial buildings. The Journal points out that paying for uninsured damage, which it estimates at $100 billion, is bound to reduce household wealth. (For more, see also: 8 Stocks Poised to Rise in Hurricane Harvey's Wake.)

Recessions and Bear Markets

"Markets tumble all the time, but have a way of coming back, as long as the economy continues to grow," Barron's reports, whereas "when a drop is accompanied by a recession, watch out." Recent examples offered by Barron's are the bear market of 1973-75, the bursting of the tech bubble in the year 2000, and the Great Recession that began in 2007, preceding the Financial Crisis of 2008. In all these cases, an economy in recession, if not necessarily the cause of a bear market, certainly added to its severity. If the effects of Hurricanes Harvey and Irma prove to be longer lasting than anticipated, touching off a genuine recession, investors have added reasons for concern.