Stocks are in the eye of the storm

Extreme weather events such as the approaching Category 4 Hurricane Florence are tracked just as closely by investors on Wall Street as they are by meteorologists at the Weather Channel.

The reason: Business disruptions and storm damages temporarily reduce the profits of companies impacted by the storm, such as insurers and retailers, and often provide a lift to companies such as home improvement retailers that help impacted people prepare for the storm and rebuild once the wind dies down and floodwaters recede.

“The disruption caused by hurricanes in the U.S. has increased in recent years,” Mark Savino, an equity strategist at Morgan Stanley, said in a report. The 2017 hurricane season was the most costly in U.S. history, with hurricanes Harvey, Maria and Irma causing an estimated $270 billion in damage.

Investors have already pushed shares of Home Depot and Lowe’s higher by 3.7 percent and 4.2 percent, respectively, since Friday as people stock up on water, plywood, generators and other items ahead of the storm. Similarly, shares of Generac, which sells backup generators that provide power when the electricity goes out, have rallied nearly 7 percent this week.

But insurers have taken a hit as investors begin to price in costs related to coming claims. Allstate has fallen nearly 2 percent, Progressive is down 1.3 percent and Travelers is off 1.7 percent.

The broader stock market historically has been less effected, mainly because the regional impacts of most hurricanes don’t have a huge impact on the overall $20.4 trillion U.S. economy.