Investing in stock assets when the S&P 500 is hitting fresh highs can be as dangerous as driving on a yet-to-be-plowed stretch of highway. You may get to your destination without a hitch. Then again, you might spin out of control and crash.
At present, both the Eurozone’s ongoing recession and “Snowmageddon” on the East Coast are likely to have an adverse impact on U.S. economic growth. It follows that a blind allocation in a blizzard is ill-advised.
Traditionally, clean-up efforts have been beneficial to corporations like Home Depot and Lowe’s. Reconstruction endeavors have also been positive for the homebuilders. In theory, you may even see a jolt to the automakers if enough cars are destroyed by Superstorm Nemo.
There’s little reason to doubt that repairs and rebuilding will occur after the snowfall stops. On the other hand, homebuilders and automakers have already had a remarkable run. Indeed, it may be more sensible to pursue beneficiaries that have not pole-vaulted quite as high over the previous 3-6 months.
For example, according to the Automobile Association of America (AAA), the price of retail gas has rocketed 30 cents in the last month alone. By way of comparison, natural gas prices have been tame. If one accepts the idea that a snowstorm of the projected magnitude is likely to push heating costs higher, and if one looks at residential heating oil prices outpacing retail gasoline over the previous 8 winters, it is reasonable to anticipate bigger profits for the natural gas producers.
Enter First Trust Natural Gas (FCG). Whereas the Dow and the S&P 500 have risen way above the highs of September 2012, FCG is still recovering. Only recently has this exchange-traded tracker of natural gas companies climbed back above a long-term 200-day trendline.
Another motif that may have traction is the increased usage of the Internet and social media during superstorms. It happened during Hurricane Sandy in October. And whether one employs “hashtags” on Twitter, or seeks guidance at Facebook, Linked In or Google, there is plenty of reason to expect larger-than-life traffic volume; online retailers also stand to gain.
Unfortunately, Global X Social Media (SOCL) has already experienced a super-sized jump off its November lows. It also has an enormous 13% weight in Facebook, which might increase volatility in your portfolio. I would prefer First Trust Technology AlphaDex Fund (FXL), which boasts a wider distribution across tech companies as well as a stock selection methodology based largely upon fundamental value.
Finally, a snowstorm, even one as severe as Nemo, may not be as threatening to the insurance industry as hurricanes or earthquakes. And Sandy did little to deter people from betting heavily on financial company gains.
On the flip side, the frequency of weather-related events may undermine the ability for insurance companies to accurately underwrite. If they cannot accurately assess probability of loss, insurers may experience smaller profits… either due to an unwillingness to write policies or due to a substantial uptick in claims.
If you are an aggressive trader, you might consider shorting SPDR KBW Insurance (KIE). The fund is severely overbought as evidenced by Relative Strength Index (RSI) readings consistently over 70; the ETF itself is more than 15.3% above a 200-day moving average.