Lexicon Financial Group Weekly Update — July 3, 2024
“We are the first generation to feel the effect of climate change and the last generation who can do something about it.”
From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel
Looking Around
The hurricane season is off to a fast start this year with Hurricane Beryl strengthening into the Atlantic Ocean’s earliest Category 5 storm on record. According to the National Oceanic and Atmospheric Administration (NOAA) in the United States (U.S.), we can expect 17 to 25 tropical storms to form in the Atlantic basin this year — approaching the record 27 named storms that developed in 2005.
Storms typically form and intensify from August to September when Atlantic waters are the warmest and loaded with storm-fueling energy from a summer of sunshine. Hurricane Beryl grew stronger because Caribbean seas are as warm today as they generally are mid-September. The result is a storm that battered several Caribbean islands, including Jamaica. In fact, Hurricane Beryl has broken many of the records set in the devastating hurricane season in 2005. (1)
The human and economic cost caused by natural disasters such as hurricanes is staggering. Of the 363 billion-dollar weather disasters since 1980 in the United States (as of August 2023), hurricanes are responsible for over $1.3 trillion in damage, with an average cost of $22.8 billion per event. Mother Nature is a force to be reckoned with. (2)
This isn’t a treatise about climate change. It’s about the economic impact of natural disasters. Damage caused by storms, earthquakes and other disasters is almost always repaired - at a cost. It’s so important because an increasing number of financial analysts are including these type of costs in their forecast for financial markets.
In April 2022, a U.S. Office of Management and Budget report warned that “floods, drought, wildfires and hurricanes made worse by climate change could cost the U.S. federal government about US$2 trillion each year by the end of this century.” In Canada, the IPCC (Intergovernmental Panel on Climate Change) estimates that our economy is vulnerable as well, to the tune of $459 billion by 2080.
Measuring the costs of things like disaster is a dark art and is certainly open to criticism. It includes the cost of replacing damaged infrastructure, but also lost productivity, as entire regions focus on rebuilding instead of economic activity. Regardless, a factory that gets flooded may take weeks or months to resume production. There is a real impact on real people and the economy.
Governments must spend the billions on construction, infrastructure, and labour to repair communities impacted by disaster. Which, in a strange turn of events, creates economic activity and growth in certain sectors of the economy.
But in the wake of Hurricane Beryl, we’ve had conversations with some clients that are worth sharing. Some believe that increased severe weather events are the byproduct of man-made climate change and wish to orient their portfolio to focus on areas of the economy that generate reduced carbon footprints. We will work closely with them to design a custom solution that aligns their portfolios with their views.
But more immediately, in the days and weeks to come, there will undoubtedly be appeals to generous Canadians to step forward to help those that have been displaced and disadvantaged as a result of this most recent weather event. As we’ve written many times before, no matter how generous you are, we invite you to call us before donating to any cause. First, we want to ensure that the cause is legitimate. Second, we want to make sure that you are supporting them in the most efficient manner. Giving cash in the moment is fantastic, but there are alternate strategies worth considering that may allow you to give even more.
Looking Back
The S&P/TSX (TSX) finished down 1.8 per cent for the month of June as investors avoided resource shares in favour of technology, for the quarter it was down 1.3 per cent.
The materials group, which includes metal miners and fertilizer companies, lost 1.1 per cent, while energy was down 0.2 per cent as the price of oil settled 0.2 per cent lower at $81.54 a barrel. (4)
Weekly North American Market Statistics
| Index | Week's Change | Year to Date |
| S&P 500 | -0.1% | 14.5% |
| Nasdaq Composite | 0.2% | 18.1% |
| Dow Jones Industrial Average | -0.1% | 3.8% |
| S&P/TSX Composite Index | 1.5% | 4.4% |
Source: Associated Press and Morningstar Direct 06/28/2024
Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
Sustainable Finance 101: The Impact of Climate Change on Your Money
In the U.S., most major stock indexes posted gains in a light news week during what seemed to be a bit of a lull in market activity ahead of second-quarter earnings reports. Small-cap companies and information technology stocks performed best, with growth stocks outpacing their value cousins.
Worth noting is that, on Friday last week, the Bureau of Economic Analysis released May data for the core personal consumption expenditures (PCE) price index, which showed that prices excluding food and energy rose 0.1 per cent from April. Core PCE, as you know, is the Fed’s preferred measure of inflation, so markets welcomed the deceleration from April’s upwardly revised 0.3 per cent pace as an indication that a September Fed rate cut is more likely. Whether the cut happens sooner or not at all depends on how the U.S. economy does over the coming months that lead up to national elections.
In local currency terms, the pan-European STOXX Europe 600 Index ended last week 0.72 per cent lower amid heightened political uncertainty in France as the snap election called by President Emmanuel Macron approaches. Major stock indexes ended the week mixed as Germany’s DAX rose 0.40 per cent, Italy’s FTSE MIB fell 0.46 per cent, and France’s CAC 40 Index lost 1.96 per cent. The UK’s FTSE 100 Index eased 0.89 per cent. Eurozone government bond yields rose ahead of inflation data in the eurozone and the U.S. This move was further supported by comments from European Central Bank that it was leaning toward a more cautious approach to cutting interest rates this year, adding upward pressure on yields.
Japan’s stock markets rose last week, with the Nikkei 225 Index gaining 2.6 per cent and the broader TOPIX Index up 3.1 per cent, as historic weakness in the yen continued to support the country’s export-heavy industries. The Japanese currency hovered around its lowest levels in 38 years, falling to around JPY 160.6 against the USD, from JPY 159.7 at the end of the previous week.
Stock markets in China weakened last week, as a light economic calendar and concerns about the slowing economy curbed investor risk appetite. The Shanghai Composite Index and the blue chip CSI 300 Index both recorded slight declines for the week, while Hong Kong’s benchmark Hang Seng Index slid 1.5 per cent, according to FactSet.
Foreign selling also contributed to the week’s declines as global funds sold about RMB 49.4 billion of onshore shares via trading links with Hong Kong in June according to Bloomberg. The selling pressure from overseas investors comes as many Chinese companies have disappointed investors with lower-than-expected quarterly earnings, underscoring the economy’s weak growth outlook. (5)
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.
Why Beryl is an early sign of a particularly dangerous hurricane season, Scott Dance, The Washington Post, July 2, 2024
Hurricane Costs, Office for Coastal Management, July 2, 2024
The close: TSX adds to monthly decline as First Quantum slides, The Globe and Mail, June 28, 2024
Global Markets Weekly Update, T. Rowe Price, June 28, 2024
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Looking to Learn?
If you want to know more about some of the topics we wrote about this week, just click on the links below:
Video: Hurricane season 2024: Here's what to know
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