🌪Whether The Weather Affects Stock Market Returns Or Is It Nothing More Than A Cool Coincidence?

Last week, we experienced the worst storm in the UK since The Great Storm of 1987. Well, technically it was a set of storms. Dudley followed by Eunice. These two were getting lonely so Franklin soon joined the crowd. And ever so (not) conveniently, I was in the countryside during storm these two storms, though thankfully I’m back in the city, just in time for storm Franklin, hurrah! 

I lost power twice last week: on Wednesday afternoon (this was Dudley’s appearance) and on Friday night (Eunice’s entrance). Though on Friday, we were ready for some no power! We had fully-charged our devices, because trust me, spending 5 hours with a phone that’s on 10% is no fun at all. It’s your best source of light (stronger than any torch we had) along with your source of entertainment and so on. Oh, and how weird is this: a few days before this storm hit (while it was slowly making its way to us), my joints were in so much pain and apparently, some people’s joints hurt before a storm. Guess it’s their body’s way of warning them. Well, if your joints were hurting you last week, now you know why! 

How Are They Named?

I’ve been so curious as to how/where these storms get their names from, and the answer is actually quite a fun one! The Met Office asks the public to suggest possible storm names and a new list gets published each year. If you’re unlucky enough to have your name start with the letter Q, U, X, Y. or Z, well, your name won’t become a storm since this will clash with the US’ hurricane naming system!

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Though, my mum tells me how these storms don’t even come close to the storm of ’87. I guess its name (‘The Great Storm’) kinda says it all. In ’87, my mum recalls how the dustbins were literally flying mid-air! She was so afraid to sleep in the loft (worried that her roof would fly off-though my friend’s roof caved in during storm Eunice!) that she camped out in her sister’s room on the (only slightly) safer second floor. Gotta be grateful for plastic dustbins or else people would be hit in the face by flying metal monsters. 

Anyway, all these storms got me wondering whether the weather actually affects stock market returns so I did a little digging. And obviously the first place I turned to was to the storm of ’87 (15-16 October) to see whether this had any affect (if any!). Well, funny you should mention because Black Monday was 3 days later! 

The Sudden Crash

Black Monday was a global, very sudden, super severe and mostly unexpected stock market crash. The Dow Jones Industrial Average (DIJA) lost 22% in one single day! By the end of October ’87, most of the major exchanges had lost 20% of their value. This crash was the combination of geopolitical events (sound familiar!!) and the advent of computerised program trading that accelerated the selloff. Yikes. Though this crash can’t actually be attributed to any single news events since nothing was released the week before the crash. 

Though as a result of that awful, awful day we now have some protective measures in place like trading curbs, circuit brakers (used in March 2020) all to prevent panic-selling. Not gonna lie, this sounds eerily similar to what we’ve got going on. Storms and geopolitical tensions (I think Russia’s invasion of Ukraine qualifies!). Let’s just hope this doesn’t spiral into another crash. I bet our portfolio are looking battered enough.

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Thinking about it from a logical standpoint, why should hurricane in Florida or a sunny day on Wall Street change company valuations? They shouldn’t! Companies’ valuations are based on a whole host of things (ahem, earnings) but the weather just isn’t one of them. Though research has found that weather can actually affect our mood which will affect our investment decisions. Sunny skies put investors in a mood to buy while cloudy skies do the exact opposite. But beyond that, the research is murky. 

There are loads of other theories on this matter! Another one is that severe weather affects things like supply chains and consumer behaviour. And the media often blames poor stock market performance on weather problems! Well thankfully they’ve now got three storms to blame, so take your pick. But Gemma Godfrey (a sceptic of this sort of weather-blame game) says that markets already price in the weather which means there’s less downside reaction but also less upside when the weather gets better! 

All in all, bad weather (like these sinister, though not-so-sinister-sounding storms) are great scapegoats for poor stock market performance! But much as we’d like to blame the weather for our portfolio’s misfortunes, the data doesn’t quite back it up, folks. But on the bright side, when markets go up, at least we won’t be dismissing its stellar performance as it simply being down to ‘a sunny day’. It’ll have come about for actual reasons. 

Well, anyway, weather or no weather, markets are in a nasty pickle right now. Our very real set of storms just so happen so collide with the stock market’s very own storm. Coincidence? Hmm. 

On that note, stay safe and stay sheltered from storm Franklin! Though head here if you’re looking for some places of shelter – for your money, of course.

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.