IN today’s world, where access to information is limitless, one tries to completely assess the market when looking for investment opportunities or when putting together their portfolio. Typically, investors turn to the likes of the Wall Street Journal, Google Finance and quarterly earnings reports to base their decisions. However, while extensive research in the financial arena may be sufficient to make an informed decision, it neglects one factor that has consistently proven itself over decades to be a market driver — the weather. Unfortunately for investors, this is not easy to predict as Mother Nature dances to the beat of her own drums.

As such, the first two months of 2010 are a clear reminder that one should not only focus on the business paper, but also take a peek into the weather section. So far this year, we have seen how abnormally harsh winter dampened economic growth in the US and how a massive earthquake in Chile sent copper prices through the roof. On the horizon, we expect to see the upcoming hurricane season make its mark on crude oil and natural gas prices. Though there is an unpredictable element to natural disasters and inclement weather conditions, one thing is certain — history has shown us that there are clearly defined market trends associated with nature’s mood swings.

Similar to the snow storms that jolted the US’ north-eastern states in February 2010, the infamous Blizzard of 1996 paralysed economic activity for two days in January as up to four feet of wind-driven snow unapologetically fell from the sky. The effect of this contributed to 201,000 jobs being lost in the month, after a healthy job market added 143,000 jobs in the prior six months. Typically, major storms that hit during the US Labour Department’s survey week have had a major blow on employment. Also, the impact of the 1996 Blizzard manifested its way into other economic data, as manufacturing production posted its sharpest decline in five years and consumer confidence plummeted nearly 11 points in January. However, it was the sharp reversal which took place for all the aforementioned indicators just one month after, which is of interest to investors and economists alike. By March 1996, the US economy had made a big turnaround, adding 750k jobs, providing further evidence that the weather-related impact was only temporary and would be filtered out in the next month.

Therefore, it came as no surprise that US employers cut payrolls by 36,000 in February 2010 as weather-related layoff and stoppages plagued industries such as the construction and transportation sectors. Likewise, the storms affected the housing market as US pending home sales hit its lowest reading in ten months, after sales fell 7.6 per cent. Taking a lesson from the past, investors should expect to see improved figures when this month’s economic data is reported (especially since February’s numbers fell less-than-expected) as the weather-related noise is removed. Consequently, they will be able to position themselves to take advantage of the stock market rally that usually accompanies a positive job data report. Though there is a potential opportunity for investors, one should be aware that March’s reports will be skewed (against the backdrop of a poor February) and may not provide a clear indication that the job market has stabilised after having weakened in 25 of the past 26 months.

Shifting the focus to natural disasters and the impact on commodities, history has shown us that when the forces of a hurricane or earthquake threaten the supply of a commodity, an upward price movement is quickly recognised. As a result, copper prices surged four per cent to as high as US$3.4069 per barrel, four days after an 8.8-magnitude earthquake rocked Chile, the world’s largest copper miner, on February 27, 2010. Similarly, when Hurricane Katrina battered New Orleans on August 28, 2005, crude oil prices immediately rose past the US$70.00 mark as over 110 oil and gas platforms were destroyed by the storm. While this reaction is consistent with the theory of supply and demand, there is still an underlying lesson which must be remembered during these times.

This predictable market reaction opens the door for investment opportunities immediately following a disaster. Firstly, before one decides to jump into the market they should evaluate the extent of the damages and estimate how quickly production will resume its normal pace. If it’s predicted that the extent of the aftermath will only hinder production in the short-term, prices tend to peak soon after, before they begin to retreat –providing the opportunity for those that were waiting to off-load the commodity to take profits at the current high.

In the case of copper, its rally was short-lived as prices began to fall to US$3.3883 per pound (as at March 9, 2010) from its post-quake high. Investors grew confident that the supply of copper would not be extremely interrupted as the tremor did not affect the South American country’s most productive mines located in the northern region (Chuquicamanta). On the other hand, had the damages been concentrated in Chuquicamanta, global supply of the red metal would have been drastically restricted in the medium term, keeping prices at an elevated level.

Simply put, investors looking to hold a position in commodities and storm-driven equities such as construction and oil companies could consider making their move in the event of a major catastrophe. Therefore, with a busy hurricane season forecasted for 2010, investors can try to play their cards appropriately before the storms swoop in.

Juvenne Yee is a Research Analyst at Stocks & Securities Ltd. You can contact her at jyee@sslinvest.com.