Don’t Trade or Invest Based on the Northeast Winter Storm

The Northeast is bracing for a major winter storm and that has traders in stocks like airlines and home improvement retailers looking for a quick score. Fine. Just don’t expect the effects of the storm to change the trajectory of these names for very long.


As expensive and destructive as these winter storms can be, the effects on revenue and earnings almost never extend past one quarter’s results and are usually immaterial.

Furthermore, the market adjusts stock prices to reflect costs for a winter storm pretty quickly, so you’ve got to be very quick and nimble to trade.

That’s why any effects on a company’s stock price from a big winter storm are usually fleeting. True, retailers like Home Depot Inc (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW) get a spike in sales at stores in the region of the storm, but even if that moves the needle on revenue, it’s not by all that much.

This time last year, much of the country was getting hit by regular winter storms amid the deep freeze of the polar vortex, but Home Depot’s revenue actually decreased during the quarter. To make a mark, a storm has to be something massively destructive like Hurricane Sandy, which did drive significant sales growth for HD in 2012.

But then, Sandy cost more than $50 billion, or more than 10 times the cost of the blizzard that struck the Northeast in February 2013.

Most of the time, however, a winter storm doesn’t do much for a company like HD. That’s because when you add up a couple days’ spike in sales for things like snow shovels and salt, it doesn’t really come to all that much — especially when you’re talking about a company with $18 billion in quarterly sales.

Yes, the costs of a regional winter storm look enormous and are very real to those who have to pay the actual bills, but they’re spread out and — again — are essentially immaterial compared to the size of the affected economies. A major winter storm might cost as much as $5 billion, but then the gross domestic product of New York state alone is more than $1 trillion.

As for airlines, the impact is more direct and highly visible, but even there a winter storm is quickly discounted by the market as just a cost of doing business. Winter storms happen every year. The first big winter storm last year cost the airlines up to $100 million amid the cancellation of 20,000 flights, and yet airlines stocks easily beat the broader market.

So even though airlines have already cancelled more than 3,000 flights ahead of the latest winter storm, related stocks are shrugging it off.

For example, when it comes to a Northeast winter storm, no one gets hurt more than JetBlue Airways Corporation (NASDAQ:JBLU), which routes about 80% of its flights through New York and Boston. In early trading, JBLU was off only 16 cents, or 1%. That’s not even worth trading without massive leverage, so retail investors need not apply.

Or take a look at United Continental Holdings Inc (NYSE:UAL), which cancelled all of its flights in the affected area on Tuesday. UAL stock was actually up more than 1% in early trades.

As widespread and costly as a major winter storm may be, it’s tough enough for professionals to successfully trade it. That means retail investors don’t stand a chance.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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