Sandy’s Aftermath May Provide a Market Lift

by Richard Band | October 31, 2012 1:00 pm

Could a devastating hurricane give the stock market a lift? Seems crazy, but that may be how it turns out.

According to disaster-modeling company Equecat, Hurricane Sandy may have caused up to $20 billion of economic damages. However, that’s less than many observers were expecting before the storm hit.

Investing is a game of expectations. When the actual news comes in “less bad” than the consensus had anticipated, prices tend to rise. (The reverse happens, of course, when folks were counting on great news but only get good news instead.)

With the financial community breathing a sigh of relief over Sandy, it looks as if stocks will stage a rebound over the next week or so. (Recall that the S&P 500 index last Friday posted its lowest weekly close since August 31.) Should the election results raise hopes of a Grand Bargain on the federal budget, the rally could carry into the second half of November. New yearly highs on the headline equity indexes might follow.

How to play the bounce? Most of our recommended mutual funds and ETFs are quoted several percentage points above our buy limits. However, one sector fund you may be able to grab at a decent price over the next few days is SPDR Energy (NYSE:XLE[1]).

XLE owns all the oil-and-gas stocks in the Standard & Poor’s 500 index. Oil shares have pulled back a tad more than the overall market since mid-September, so a reflex rally could lift XLE a bit more than the S&P 500 in the weeks ahead.

I’m targeting a 6%-8% gain on this trade by late November or early December. We’re tracking XLE as a Niche Investment outside the model portfolio.

Among our individual oil stocks, model portfolio pick BP (NYSE:BP[2]) delivered a pleasant surprise Tuesday (in London, where “hurricanes hardly ever happen”) by sweetening its dividend 12.5%. I look for the stock to pop when New York trading resumes Wednesday morning.

Now that BP has wriggled out of its contentious Russian joint venture (and emerged with a fistful of cash), the company should easily be able to afford the new, higher payout.

  1. XLE:
  2. BP:

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