Hurricanes’ Impact on The Stock Market
There’s a hurricane in the Gulf of Mexico barreling toward Florida. Hurricane Helene is currently classified as a Category 2 storm, which can cause significant damage, flooding, and destroy buildings. Especially in the panhandle of Florida, which is less equipped and less frequently hit by hurricanes than places like the west coast of Florida.
Initially, Hurricane Helene was on track to drive straight into the Tampa Bay area. But since then the storm’s course has changed significantly and is expected to batter the Panhandle then make its way straight up through the southern United States towards Tennessee.
Once it makes landfall it’s expected to bring a plethora of high winds, rain, and flooding.
But all this reminded me of something I learned a while back.
Hurricanes sometimes cause certain stocks to surge and other stocks to plummet. So today I want to deep dive into what these areas are and how it all works.
The biggest impact of hurricanes on the stock market revolves around the disruption they cause to businesses, insurance costs, and sometimes, the entire supply chain.
Firstly, insurance companies bear the brunt of immediate financial strain post-hurricane. Claims skyrocket, putting pressure on the reserves of insurers and often leading to a short-term dip in their stock prices.
However, this isn’t always a long-term trend. Post-disaster, insurance premiums often increase, potentially leading to higher profits down the road, at least until the next hurricane hits.
Investors need to differentiate between immediate impacts and long-term outcomes when dealing with insurance stocks during hurricane seasons. These can sometimes be a riskier gamble.
Secondly, the construction and home improvement sectors often see a surge in activity and stock prices following significant storm damage. Companies like Home Depot (HD) and Lowe’s (LOW) have historically experienced gains after major hurricanes due to the spike in demand for building materials and supplies for repairs.
This is the area I would feel most comfortable investing in playing the hurricane trend.
Some energy stocks also take a hit… Energy companies connected to oil and gas production in the Gulf of Mexico, are affected by hurricanes.
It’s hard to drill for oil when 100mph winds and 20-foot waves are battering your oil rig.
Many offshore drilling operations halt, and refineries shut down as a precaution, which in turn spikes oil prices temporarily.
While this might be good for oil prices, it can hamper the stock performance of companies directly impacted by shutting down their operations. So, in the end, it’s a mixed bag. For some energy companies, it may help them, for others, it may hurt them.
Overall, my favorite area to target would be the construction industry, things like lumber, building supplies, etc. Like how I mentioned Home Depot and Lowe’s stock earlier.
To me, they are a safer way to play the hurricane trend because at the end of the day, they’re both solid companies with consistent demand and cash flow.
So they’re not as likely to see any significant and severe sudden drops in their stock prices as we see in insurance and energy companies more frequently.
— Nate Tucci
