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Columns | Go Far With Kovar

"Weathering"
the markets

by Taylor Kovar

July 11, 2023

Hi Taylor - As I suffer through another heatwave, I remember reading something about how weather affects the economy. Aside from people using the A/C more, do you know what weather conditions affect the markets?

Hi Lilly - When you study the markets enough, you can definitely see seasonal and weather-related trends. More than that, you can just imagine the cost associated with the delays and destruction caused by severe weather. Sometimes the losses are so big they're hard to fathom. I think about this stuff on both a micro and macro level, which might make things clearer for you.

1. Micro effects. Like you said, we have to run our A/C through the summer. Everyone remembers a couple winters back when the news was all about Texas residents paying $7,000 for a week of electricity during that intense freeze. That's an exceptional example, but you can see how temperature changes cost individuals money. In addition, people have to contend with conditions that make it harder to do their work. If it's too hot or too cold, people struggle to keep their crops alive; ranchers have to pull out all the stops to keep their livestock healthy. If there's too much snow and ice, people can't drive to work. Depending on the industry, a bad storm can be a huge setback.

2. Macro effects.
This is the stuff we hear about but have more trouble comprehending because the numbers are enormous and only loosely tied to our realities. For example, the National Oceanic and Atmospheric Administration says extreme weather events cost the U.S. $165 billion in 2022. That's a lot of money! It's such a big number that it hardly makes sense. But when you think about a hurricane forcing people to shut down stores and evacuate, then that community/city/state has to rebuild homes and stores after the storm rolls through, it makes a little more sense. Between insurance payouts, the municipal costs for cleanup, and the personal losses, bad weather can obviously shake up the economy.

3. Seasonal effects.
Obviously, the macro lens shows how high the losses can be. It's also useful to think about how things are impacted at different times of the year. We're dealing with heat waves right now, which can lead to blackouts. If a beach town or lakeside community can't use the electrical grid, it's going to be hard to get money from all those summer tourists looking to buy stuff. Similarly, winter storms end up grounding a lot of planes. If a bad enough storm hits right around Thanksgiving or Christmas, that comes at massive losses to the airlines, the hotels, and everyone else who counts on that seasonal travel.

To date, bad weather hasn't caused a market fallout the same way the housing crisis or Covid did. It's hard to imagine a catastrophe that big. Still, it's not hard to see how those billions of dollars add up when you think about all of the weather events that happen throughout the year. Hope this helps, Lilly. Stay cool out there!
Taylor Kovar

"Go Far With Kovar" July 11, 2023 Column
Legal Disclaimer: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.


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