Investing During Hurricane Season

Hurricane season typically runs from June to November. For 2024, the U.S. National Oceanic and Atmospheric Administration (NOAA) has warned of an ‘extraordinary’ Atlantic season. In fact, NOAA has forecast eight to 13 hurricanes – with four to seven of those being deemed as ‘major hurricanes’.

Furthermore, NOAA has said that there is an 85% chance of having an above-normal season. This is due to near-record warm ocean temperatures in the Atlantic, the development of La Nina conditions in the Pacific, reduced Atlantic trade winds, and less wind shear. All of these factors support the development of more tropical storms.

But what does that mean for investing? Are there stocks or strategies that do well in a world where there are going to be more hurricanes?

Here, we identify the impact of hurricane season on financial markets as well as suggest some sectors that often outperform when a hurricane strikes.

Impact of Hurricane Season on Financial Markets

The power of hurricanes can be felt on the stock markets across a broad range of sectors. That’s because these storms affect consumer behaviour through damage caused, preventative action, and any subsequent recovery efforts. If consumers know a hurricane is coming, they tend to spend more on protecting their homes prior to the event and stocking up on items needed in the home during the storm itself. Then, after a hurricane, any damage created needs to be rectified.

For example, after Hurricanes Irma and Harvey in 2017, the S&P 500 saw an increase, attributed to a higher demand for building materials, home improvement supplies, and trucking services. Therefore, while long-only investors may choose to hold their portfolios steady with little to no trading throughout hurricane season, more nimble strategies may see an opportunity to make higher returns.

Types of Stocks That Perform Well During Hurricane Season

The following types of stocks tend to perform well during hurricane season due to increased demand for their products and services:

-      Home Improvement and Building Supplies

Businesses in the home improvement and building supply sector benefit during hurricane season as they see an understandable surge in demand.

-      Generator Manufacturers

Consumers and businesses buy more generators to protect themselves against power outages during a hurricane, leading to a spike in demand.

-      Construction and Engineering

Due to the need for reconstruction after a hurricane, construction and engineering companies see a surge in their services after the storm has subsided.

-      Insurance and Reinsurance

While insurance companies see an increase in claims after storms, they will also benefit from increases in premiums and policy renewals. Reinsurance companies often see a positive impact if the season is less severe than expected.

-      Oil and Gas Equipment and Services

Even though hurricanes can disrupt oil production and refining (particularly in the Gulf of Mexico), there is a subsequent demand for oil and gas equipment or services as companies work to restore production.

-      Marine Equipment and Services

A huge number of boats are damaged during hurricanes, leading to an increased need for replacements or repairs and a higher demand for marine equipment and services.

-      Utilities

While utilities may experience difficulties during a storm, in the aftermath of a hurricane, they often see a boost in revenues from repairs and restoration of services.

-      Emergency and Safety Equipment

Companies that produce emergency and safety equipment often see an uptick in sales from both consumers and businesses before and after hurricanes. Safety equipment, emergency supplies, and protective gear all experience increased demand during preparation and recovery from storms.

-      Food and Beverage Retail

Consumers head to the grocery store in their droves to stock up on essentials before a forecasted hurricane. Items such as bottled water and non-perishable food items are particularly popular.

Investing According to Hurricane Season

Overall, hurricane season offers investors a number of short-term opportunities - but remember there are always risks when it comes to investing. Bearing that in mind, it can be helpful to focus on stocks from sectors that have historically performed well during the hurricane season - as listed above.

However, it’s not a given that all these sectors will always do well between June and November. It’s vital to continue thorough due diligence as part of a wider research process to ensure investments always align with an investor’s risk profile and investment preferences.

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