What Areas Of The Market Go Up During A Hurricane?

CARIBBEAN SEA – SEPTEMBER 7: In this NOAA handout image, NOAA’s GOES satellite shows Hurricane Irma as it moves towards the Florida Coast in the Caribbean Sea taken at 03:30 UTC on September 07, 2017. The state of Florida is in the track of where the hurricane may make landfall. (Photo by NOAA GOES Project via Getty Images)

Hurricane Irma’s on track to cause a lot of damage to the state of Florida over the next few days. I decided to take a look and see what areas of the market perform well in the aftermath of a hurricane. The evidence is mixed because every hurricane is different and the damage/impact varies depending on where and how severe the hurricane is. The key is to see how the hurricane will impact the economy and then reverse engineer it and find assets that move the most (up or down) in that environment.

Look At The Impact:

Hurricane Harvey left much of Houston underwater which sent gasoline prices soaring before they came back down to earth. In Florida, Orange Juice prices soared as Irma strengthened. Steel stocks should do well because people will need to rebuild. Retail and home improvement stores such as: Wal-Mart, Home Depot, Lowes, and Generac, also tend to see a nice bump in sales and tend to do well as people buy more goods from these companies. Other areas to look at are bonds, for those of you who like to invest in that space. Depending on the damage, Home builders are another area of the market that could potentially do well if they have to rebuild homes. Finally, it is also important to note that you can capitalize on stocks that go down or are adversely affected by the hurricane (such as insurance companies). Again, the key is to focus on the impacted areas than ask: What does this mean for the market?

What The Pros Are Saying:

I always like to ask the pros to see what they are saying. Here are some comments from some notable money managers that you may find valuable:

Keith McKenzie, Founding Partner, Delphi Private said,  “Institutional and ultra-high net worth investors often incorporate exposure to “disaster bonds” as a way to source uncorrelated risk in their portfolios. These bonds are designed to backstop insurance losses from massive storms and more specifically, wind damage.. As hurricane Irma continues to move towards the southeastern U.S., investors should anticipate price volatility and mark-to-market losses in this area of their portfolios.”

Drew Cleland, CMT is a Portfolio Manager at Trustmark Investment Advisors and he said, “If you look at the six costliest hurricanes that impacted the U.S., the S&P 500 shows a mild positive bias, largely in-line with normal returns, in the following six and twelve month periods post landfall. The lone outlier was Hurricane Ike which hit in late-September 2008 right as the Financial Crisis was beginning in earnest. Historically, the stock market has proven to be very resilient in the face of natural disasters, even the costly ones.”

Greg Silberman, Chief Investment Officer, ACG Wealth said, “Irma, is expected to affect the south-east coast of Florida disproportionately, the leveraged condo market of Miami is susceptible. Certain financial institutions are heavily exposed to Real Estate loans in South Florida. Given the leverage and extent of uninsured losses, it is possible that a direct hit could cause problems for the Bonds of those issuers and the Corp bond market in general.”

Barnes Ellis, partner, Baker Ellis Asset Management LLC said, “A lot of national writers pulled back from the Florida homeowners market after Katrina. The companies with the most exposure in Florida are fairly heavily reinsured, so a lot of the impact would be felt by reinsurers. That group — RE, RNR and VR — has traded down 5-10% this week, and we expect the group to be under selling pressure until the track of the storm is more clear.”

Bottom Line:

For your portfolio, the companies that do the best tend to benefit from the rebuilding effort. Remember, the most important thing is for everyone to be safe and healthy. Our thoughts and prayers are with everyone impacted by the Hurricane. I live in Florida and managed to get out earlier this week and I am writing to you safely from the North East.