Yesterday by 9:00AM Eastern Time, the storm had made landfall in Florida and was making its way up the West coast causing widespread devastation and havoc.
For investors, the storm comes at a challenging time, with Hurricane Harvey, North Korea and upcoming debt ceiling negotiations all providing additional uncertainty to market sentiment.
As well as keeping a tab on global price changes, investors can track investor sentiment and media news coverage in order to stay on top of developments.
In the rest of this article we will take a look at how the Hurricane Irma is impacting global financial markets. For a detailed analysis, please refer to the accompanying case study ‘Hurricane Irma And Evolving Investor Sentiment’.
Hurricane Irma On Commodities
The effect of Hurricane Irma on global commodity prices has been particularly noticeable.
As shown by the investor sentiment treemap below, there has been considerable coverage devoted to the energy sector particularly crude oil, natural gas and gasoline:
Crude Oil and Natural Gas, are showing negative sentiment scores on the back of decreasing demand; with nearly three million residents losing power as a result of the storm.
Unlike Hurricane Harvey, there are no expectations of major disruption to supply, as most oil production centres are situated away from the line of fire. So this is predominantly a story of lower demand and that is why we are seeing a consistent negative sentiment towards the energy sector (with the exception of gasoline, which could benefit from a rise in auto use as residents evacuate areas of danger).
As you might expect, this negative sentiment in energy is being accompanied by price losses with crude oil futures down around 3% from their open on Friday and natural gas also trading lower.
Meanwhile, news coverage relating to frozen orange juice futures has been overwhelmingly positive, again showing up in the treemap with sentiment above average.
With the hurricane bearing down on the state of Florida, the supply of orange juice will be severely affected. Thus, it is no surprise to see this market performing strongly over the last few days.
Hurricane Irma On Stocks
The hurricane is also having a major impact on US stocks with both winners and losers.
As with any event of this nature, the overall economic impact is negative. Goldman Sachs estimates the potential combined cost of Hurricane Irma and Harvey to be 1% of U.S. GDP. They also suggest that 100,000 jobs could be lost - a figure to keep in mind for future non farm payrolls releases.
However, amidst the carnage there are some companies that stand to lose and some that will gain. Time after time, investor sentiment provides a good tool for observing the dynamics at play.
The following treemap shows investor sentiment for a number of US listed stocks that are strongly impacted by Hurricane Irma:
It is clear that a number of airlines are being negatively impacted due to the cancellation of over 12,000 flights and the dropping of price fares for stranded customers.
United Airlines (UAL), Southwest Airlines (LUV), Jet Blue (JBLU) are all showing negative sentiment scores, although American Airlines (AAL) appears to be bucking the trend.
Also under pressure are those companies with significant investment in the region, particularly energy producers, insurers and restaurants.
Bermuda based insurer XL Group (XL) is heavily in the red indicating significant negative sentiment following complete devastation in the North Caribbean area.
As is Royal Caribbean Cruises (RCL) which has had to deal with major disruptions to cruise operations.
On the flipside, some stocks are showing a much more positive outlook.
Construction firms such as The Home Depot (HD) and Lowe’s (LOW) are showing positive investor sentiment under the narrative that a great deal of building work and home repair will need to be done.
Generac Power Systems (GNRC) is also highlighted in bright green as the company ramps up production of its power generators and pumps before deployment to affected areas. Investor sentiment is positive and the share price has rallied 14%.
Case Study: Hurricane Irma And Evolving Investor Sentiment
Going forward, investors will need to keep a close eye on investor sentiment as the deadly storm progresses further up the west coast of Florida. There are usually many opportunities created during these times of turmoil as markets under and over react to events.
For a more detailed analysis, please refer to the accompanying case study ‘Hurricane Irma And Evolving Investor Sentiment’.
JB Marwood is an independent trader and writer specialising in mechanical trading systems and market analysis. He can be reached at https://decodingmarkets.com/Request Case Study