Catastrophe In Houston; Major Rebuilding & Infrastructure Restoration Will Be Needed; Gasoline & Refineries Likely To Get A Boost; Insurance Companies – Not As Bad As Some May Think — September Historically Worst Month Of Year For Stocks
First, my thoughts and prayers go to the people of Houston and the surrounding vicinity. It is heartbreaking to watch. More rain is forecast, and FEMA expects more than 450,000 people to file for some kind of assistance. Major refineries are shutting down, which is pushing up the price of gasoline this morning. While insurance companies for homes and autos will take a financial hit, it is expected to only be a moderate hit — despite the profound damage — because the Federal government is responsible for flood insurance. Thus, the American taxpayers will be the ones that will shoulder the majority of the financial reimbursement and assistance. But, this community/s will need more than our thoughts and prayers — so, I would encourage everyone to consider ways to donate money, time, resources, or other tangible assistance to this very distressed community.
With that said, the world does not stop and Wall Street will open in less than an hour as I write this note. According to CNBC this morning, Royal Dutch Shell announced yesterday (Sun.) that is was closing its Deer Park Refinery with a capacity of 340K barrels per day’; Exxon Mobil’s Baytown Texas plant is also shuttered; and, overall, estimates are that the U;S. will lose more than 1M barrels per day of refining capacity — just from the Houston/Galveston area. Twenty-two percent of the current oil production in the Gulf of Mexico is also offline, as of this morning/Monday, August 28, 2017. CNBC also reports that the Phillips 66 Sweet Texas Refinery (260K/barrels per day) is shutting down, and output at Marathon’s Galveston Bay Refinery (460K barrels per day), and the Access Industries Plant in Houston are (260K barrels per day) slowed due to the Port of Houston being closed.
As you might expect, with 15 percent of the U.S.’s entire gasoline/refinery capacity located in the Houston/Galveston area, this kind of major disruption will cause higher gasoline prices across the U.S. With the summer driving season coming to an end; and the switch to the less expensive winter blend gas, those factors will mitigate some of the increased gasoline prices that are coming. Tom Kloza, Oil Price Information Global Head of Energy Analysis told CNBC this morning during a telephone interview that he expects gasoline prices to rise at an annoying and noticeable rate in the coming days. It won’t be alarming, nor a sharp rise; but, it will certainly get our attention he told CNBC. The longer these refineries are off-line, the higher the price of gasoline will go.
The share prices of Marathon (MRO), Valero (VOL), Holly Frontier (HFC), and PBF Energy (PBF) are likely benefit — with Valero the likely big winner, according to CNBC’s Jim Cramer. While refinery stocks should benefit, the oil producers won’t, as there will be less capacity to refine the oil.
One would also expect that major infrastructure plays such as Home Depot, Lowes, and major infrastructure players are also likely to see share price increases — all things being equal.
Historically: September Worst Month Of Year For Stocks
The unfolding catastrophe in Houston/Galveston makes a potential government shutdown much less likely in my opinion; and, that will take a little uncertainty away with respect to stocks. Having said that, September is the worst month of the year for stocks historically. September “is the only month of the year in which the Dow Jones Industrial Average has been lower on average over the past 20, 50, and 100 years,” according to Bespoke Investments. “Over the last 100 years, the DOW has averaged a decline of 0.96 percent in September, with positive returns just 42 percent of the time,” the research wrote in 2015. “No other month of the year has averaged a decline the last one hundred years; and September has averaged a one percent decline.”
According to Kensho Analytics, over the past 20 years, the S&P 500 has declined in the month of September by an average of 0.75 percent, with Materials leading the charge down by an average of -2.72 percent, Information Technology by -1.65 percent, and Financials by -0.86 percent.
Of note, when August closes higher, the month of September experiences less of a loss; and, the times the indices rose, it was usually when August also rose. All for now. V/R, RCP