Hurricane Harvey proved a menacing force. It devastated Southeast Texas. Harvey could wind up being the most expensive natural disaster in American history. But it couldn’t wreck the American spirit. This matters for so many reasons.
Houston is now the 4th largest city in the U.S., by population and economic output, behind New York City, Los Angeles and Chicago. Houston’s economy is heavily exposed to Energy, but is still fairly diversified with heavy exposure to Health Care, Aerospace and Tech. Its economy alone is roughly the size of Sweden. Southeast Texas has the largest oil refineries in the country. Roughly 20% of total the US refining operation was taken offline from the storm, which has driven gas prices to 2 year highs. It’s coming at a time where demand is strong for the Labor Day weekend. The national average for unleaded gasoline is now $2.52 per gallon. Prices really spiked along the East Coast, which receives a lot of their gas from the Gulf Coast. The precedent from Hurricanes Katrina and Rita in 2005 suggests that the impact will still be felt for several months. You can see the impact the hurricane will have on the US economy.
For those of you surprised that this Market has gone higher in the face of some really concerning events, consider this: An important factor has been the lack of volume this week, which is normally very light heading to the Labor Day weekend. This week had the lowest volume since Christmas. Low volume sessions are generally bid up. The DOW jumped back above the 22K level Friday before closing just below it. We’ve been seeing lower highs and lower lows. Next week will be telling when trading desks are full again and the focus turns to issues and year-end. The speed will pick-up significantly. We still think lower levels will come too with a continuation of the correction before a year-end rally. The risks at this stage are greater than the potential rewards in our estimation.
The devastating storm in Southeast Texas decimated the region, but not the spirit of the people. How the first responders and the people in the greater Houston area rallied together is truly inspirational. The best in human kind was brought out with people from all walks of life coming together to help each other get through the pain. It is indeed going to be a long road ahead in recovery for the Gulf Coast region. Let’s hope the message of unity and togetherness will last far longer.
The Houston Astros return home to play the Mets tomorrow. The team is giving away free tickets to first responders. They’re also sending 10,000 player jerseys to local shelters. The Astros are in first place in the American League right now. Imagine what it would mean for this city to see this team make it to the World Series. I’m pulling for Houston. That would be very cool.
After the Market closed for the week, our team began assembling backpacks with school supplies, which are now headed to homeless and underprivileged kids in Houston. These kids didn’t have much to start with and lost everything they had during the storm. We were inspired and wanted to help. Hopefully they will be inspired and these materials will help them begin the rest of their lives in pursuit of their dreams. Great things start with a dream. The thought makes me smile.
Have a nice weekend. We will be back, dark and early on Tuesday. Our office will be closed Monday for Labor Day.
Mike Frazier
