While attending a recent conference in Carlsbad, CA, I asked myself the familiar question: Why don’t I live here? As some of us in colder climates pine for warmer weather during this time of year and dread the approach of snow, it seems the wish for warmer weather may be coming true. This week’s chart shows temperatures since the beginning of November exceeding historical averages by an average of five degrees in Philadelphia. Additionally, every daily temperature in December has exceeded the historical average. While this warmer weather may be welcome in enjoying unexpected golf in December or letting that snow blower gather a little more dust, the effect on investment portfolios may be decidedly less welcomed.
Warmer-than-average temperatures across the eastern half of the country are weighing heavily on energy-related commodities. In this low-yielding environment, investors who are searching for income in the high yield bond market or through Master Limited Partnerships have been getting burned. Digging a little deeper reveals some risks warm weather poses to already struggling sectors, such as oil & gas and retail. Warmer temperatures tend to reduce demand for heating oil, which can erode support for oil prices. In the retail sector, many consumers use the fourth quarter as an opportunity to turn over their wardrobes, but fewer consumers will engage in this behavior if there is less of a need for winter clothing.
Key Takeaway: The oil & gas sector has been struggling for over a year, and many analysts are starting to worry that the retail sector will be the next shoe to drop. While warmer weather can sometimes be good for stocks due to psychological factors, it has been shown to have negative effects this time of year on the retail and oil & gas sectors. When it comes to the weather, investors should be careful what they wish for. If this warmer weather adds volatility amidst an impending Federal Reserve rate hike to already struggling sectors, investors might be better off anticipating ski season, rather than hoping the warm weather will continue.
The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
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