Sector ETF Winners And Losers From The Winter Storm

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Includes: BITE, FCG, IYT, JETS, PEJ, PEZ, PMR, RTH, USO, XRT, XTN
by: Zacks Funds

Finally, the northeast U.S. encountered the winter storm Jonas defying widespread talks about a warmer winter this year. Freezing temperatures not only took the region under the quilt of heavy snow, but also left a deep impact on the U.S. economy. Though the snow storm has stopped, up to almost 30 inches of snow will likely paralyze economic activity for the coming few days.

However, pros and cons are probably related to every event. Among all the sectors, there are a few that stand to gain from this blizzard, and others that are likely to be badly hit. Below we highlight some sectors which are in focus after the winter storm Jonas.

Gainers

Energy

Why the energy sector is a clear winner of this weather disruption is anybody's guess. As almost 50% of Americans use natural gas for heating purposes, expectations of higher usage of natural gas pushed up the commodity's prices recently. Not only this, the positive side of increased heating demand was also felt in to the most beleaguered commodity - oil.

As a result, the First Trust ISE-Revere Natural Gas Index Fund (NYSEARCA:FCG) added over 5% on January 22 while the crude oil ETF, the United States Oil ETF (NYSEARCA:USO), advanced about 8.3% on the same day both on the cold snap and compelling valuation (read: Oil and Energy ETFs That Hit All-Time Lows).

Retail

Retail sales have been a cause of concern for quite some time now. The key barometer of economic well-being is not keeping pace with economic growth. Retail and food services sales declined 0.1% in December, while the consensus had estimated the figure to remain unchanged.

Meanwhile, retail sales increased 2.1% in 2015, its weakest yearly progress since 2009. One reason for this could be that after seeing one of the worst recessions few years ago, consumers are saving more and purchasing less. But the latest monthly slump was mainly due to the second-most mild December since late 1800s which debarred consumers to shell out on winter essentials like sweaters, coats or boots (read: Weak Retail Sales Hurt These ETFs; What Lies Ahead?).

So, the latest volley of snow and the expectation of chilly days ahead may boost sales of winter garments and benefit retailers. This theory put retail ETFs including the SPDR S&P Retail ETF (NYSEARCA:XRT), the Market Vectors Retail ETF (NYSEARCA:RTH) and the PowerShares Dynamic Retail Portfolio ETF (NYSEARCA:PMR) in focus. XRT, RTH and PMR were up 1.8%, 1.9% and 1.7%, respectively, on January 22.

Losers

Transportation

Since roads, railways and runways are under the coverlet of almost record amounts of snow and people are locked inside, transportation stocks and the related ETFs are expected to be hurt. As per CNN, the Long Island Rail Road, suffered considerable damage during the storm and five out of its 12 branches- that make up about 20% of traffic in the rail network - will remain closed even after the storm, for repairs.

Roadways are still not ready for communication and will likely leave an adverse impact on transportation ETFs like the SPDR S&P Transportation ETF (NYSEARCA:XTN) and the iShares Transportation Average ETF (NYSEARCA:IYT). Though XTN and IYT added 1.9% and 1.3% respectively on January 22, 2016 in line with the broader market rally, their first-quarter results are likely to have a bearing of this cold snap. Both ETFs have a Zacks ETF Rank #4 (Sell).

Airlines

This sector is yet another victim of the whiteout. Such a momentous snow event has already cancelled about 10,000 flights. A rapid resumption seems implausible given the loads of snow on the runways and the still-unclear weather. Though airlines are trying to cope with storm-related losses by issuing weather waivers for fliers, we believe that airlines have to bear with some losses as travel demand has weakened. So, investors need to be watchful on the airline ETF, the U.S. Global Jets ETF (NYSEARCA:JETS). Like transportation ETFs, this airline ETF may also have to face some weakness in the Q1 earnings results.

Hospitality

Tourism and hospitality sectors are also likely to be hit during this snow storm. So, the PowerShares DWA Consumer Cyclicals Momentum Portfolio (NASDAQ:PEZ) which invests over 25% in Hotels, Restaurants & Leisure and over 11% in Airlines, or the PowerShares Dynamic Leisure and Entertainment Portfolio ETF (NYSEARCA:PEJ) having considerable weights in restaurants, resorts and airlines are likely to feel the brunt of the snow storm as the underlying companies will do less business as long as the freezing phase continues. The Restaurant ETF (NASDAQ:BITE), otherwise a strong bet on the improving restaurant sector, might also see some weakness thanks to a temporary slack in sales.

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