The long-lasting impact of Hurricane Harvey that badly hit Houston, the fourth largest U.S. city, is hard to estimate. But the storm seems one of the costliest natural disasters in the history of the country.
Texas Governor Greg Abbott estimates damages at $150-$180 billion, calling Hurricane Harvey costlier than Hurricanes Katrina or Sandy, which devastated New Orleans in 2005 and New York in 2012, respectively. Per AccuWeather, the storm that has wreaked havoc on Texas will likely cost $190 billion or 1% of the nation's GDP, surpassing combined damages caused by Hurricanes Katrina and Sandy. Analysts with Risk Management Solutions believe the losses would be closer to that of Superstorm Sandy between $70 billion and $90 billion.
Harvey is the first major hurricane in the United States in more than a decade and has hurt tens of billions in economic activity causing damage to property across a region crucial to the energy, chemical and shipping industries.
The devastation does not stop here given that a new hurricane named Irma landed on the islands of the northeast Caribbean on Tuesday and could turn toward Florida over the weekend. It is touted to be the most powerful hurricane ever recorded in the Atlantic Ocean. According to the National Hurricane Center forecast, Irma is a life-threatening storm for the United States, including Puerto Rico, the United States and British Virgin Islands, the Dominican Republic, Haiti, Cuba and the southeastern Bahamas.
Given the two hurricanes, many corners of ETF investing have been severely impacted while some are gaining. Below, we have highlighted them in detail:
As Houston is the heart of the U.S. oil and gas industry, the Harvey impact has been felt in the energy markets. This is especially true as the catastrophe has led to a closure of nearly 25% of U.S. oil-refining capacity, threatening supply crunch and pushing up the U.S. gasoline price. Gasoline price at the pump soared 27%, representing the largest weekly increase since Hurricane Katrina. The uptrend is likely to continue as another incoming storm is projected to hit Florida that could add another 10 cents to the gasoline price.
However, the price dipped in today's trading session on the news of restarting some of the Harvey-damaged refineries though the uncertainty over 100% resumption anytime soon is looming large. The best way to play the aftermath of Harvey and Hurricane Irma is with the United States Gasoline ETF (NYSEARCA:UGA), which allows investors to make a direct play on the commodity of RBOB gasoline.
The two storms are likely to create a greater need to rebuild infrastructure such as homes, office, roads, bridges and many others propelling demand for all types of home improvement equipment. As such, ETFs that focus on these industries are poised to benefit in the coming days.
While there are several options in this space, the most interesting picks would be the iShares U.S. Home Construction ETF (BATS:ITB), the PowerShares Dynamic Building & Construction Portfolio (NYSEARCA:PKB), and the PowerShares DWA Industrials Momentum Portfolio (NASDAQ:PRN). All these funds have a Zacks ETF Rank #2 (Buy), suggesting their outperformance even without the storm acting as a tailwind.
Harvey has caused disorder in the airline industry, cancelling more than 13,300 flights across Houston during a 12-day period stretching from Aug 25 through Sep 5, according to flight-tracking service FlightAware. Most of the cancellation came from Houston's George Bush Intercontinental Airport and William P. Hobby Airport.
The disruption intensified following Hurricane Irma as airlines are canceling flights in the Caribbean and offering waivers to passengers in Florida. All these are weighing heavily on the U.S. Global Jets ETF (NYSEARCA:JETS), which provides exposure to the global airline industry, including airline operators and manufacturers from all over the world. The fund has a Zacks ETF Rank #3 (Hold).
With Hurricane Harvey impacting Houston and the Texas Gulf Coast, and Hurricane Irma likely to affect Florida, insurers are having a rough time this quarter. This is because damage is expected to reach billions and hit a number of insurance companies, especially property and casualty insurers. Wall Street estimates insured losses from Harvey as high as $20 billion, making it one of the top 10 costliest hurricanes to hit the United States.
In the wake of the incoming storm, insurance stocks had their worst day of 2017 on Sep 5. In particular, shares of HCI Group (NYSE:HCI), Universal Insurance Holdings (NYSE:UVE) and Heritage Insurance Holdings (NYSE:HRTG) are down in mid-double digits while reinsurers XL Group (NYSE:XL) and Everest Re Group (NYSE:RE) are off mid-single digits.
That said, some pain is in store for insurance ETFs. While the PowerShares KBW Property & Casualty Insurance ETF (NASDAQ:KBWP) looks to be the most directly hit ETF by this storm, the iShares Dow Jones US Insurance ETF (NYSEARCA:IAK) is a more popular choice in the insurance industry. Both funds have a Zacks ETF Rank #3.
Hurricane Irma is projected to case rainfall in Florida this weekend, hurting sales at restaurants just one week after Harvey took a toll on the same-store sales at chains with heavy presence in Texas. As such, the USCF Restaurant Leaders Fund (NYSEARCA:MENU) having a Zacks ETF Rank #3 might be in trouble.
Agriculture - Cotton
Cotton prices are surging as flooding and heavy rainfall from Tropical Storm Harvey in Texas and Louisiana have raised worries over the quantity and quality of the cotton crop. Notably, both are the largest cotton-producing states in the country. Now, Hurricane Irma is also threatening the supply of cotton in Florida, another cotton producer state. Given this, the iPath Dow Jones-UBS Cotton Total Return Sub-Index ETN (NYSEARCA:BAL) and the iPath Pure Beta Cotton ETN (NYSEARCA:CTNN) are set to gain this week. Both products have a Zacks ETF Rank #5 (Strong Sell), indicating that smooth trade might not last long.