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Hurricane Irma’s impending Florida landfall is getting some of the blame for weakness Friday on Wall Street, but history shows that major hurricanes have been a limited drag on the performance of stocks as a whole. It’s a different story, however, for individual stocks and certain sub-industry groups.
And with the tally from Hurricane Harvey and Hurricane Irma seen potentially exceeding more than 50% of the total hurricane damage tally seen over the last 50 years in 2017 dollars, those stock and sub-industry moves are likely to be even bigger than usual, wrote J.P. Morgan’s U.S. equity strategy team led by Dubravko Lakos-Bujas, in a Friday note.
The list of hurricane-sensitive groups comes as no surprise. They write:
The underperformance should be concentrated in insurance (e.g. property loss coverage), and companies within Hotels, Restaurants, Leisure, & Airlines (e.g. based on occupancy / traffic, rising commodity costs), Telecom and Cable (e.g. capital expenditure tied to repair and potentially lower ARPU), and Industrials (e.g. rising input costs, disruption in production and transportation) depending on geographic footprint. The largest outperformers include industries tied to replacing and/or repairing existing capital stock (e.g. Energy Equipment & Services, Communication Equipment, Autos), transportation and logistics (e.g. Distribution, Air Freight, Trading Companies), and construction (Basic Materials and Engineering).
As for the overall market, however, they found a median decline of 2% for the S&P 500 SPX, -0.01% over the seven days before and after a major hurricane landfall since 1965. The overall effect tends to be mitigated by the subsequent pickup in public and private spending, Dubravko wrote (see chart below).
Drilling down to the industry level, the analysts found that in the 10 days before and after major hurricane landfalls since 1995, distributors were the top performer—rising 100% of the time for an average gain of 3.1%. Construction materials were No. 2, rising 80% of the time for a 2.9% average gain.
On the downside, the independent power producers and energy traders group has risen only 20% of the time and has seen an average fall of 7.9%. That’s in part due to a nearly 31% thumping that the group suffered after Hurricane Ike socked Texas and Louisiana in September 2008.
The insurance group has seen an average 2.2% decline, rising only 20% of the time during the landfall period, the analysts found, while industrial conglomerates never rose and have seen an average decline of 2.1%.
Insurance companies were bouncing back Friday, but some shares took big hits earlier this week as investors weighed exposure to Harvey and braced for Irma. The PowerShares KBW Property and Casualty Insurance Portfolio ETF KBWP, +3.81% rose 1.7% Friday, but is still headed for a weekly loss of around 5.7%.