How natural disasters can impact your portfolio
With the U.S. facing Houston and South Florida catastrophic level disasters, and an earthquake in Mexico, why doesn’t your portfolio appear to be impacted by all of this news?
In short, it is being affected, but not because of how you may think.
The U.S. dollar, for example, is now at a 33-month low against a basket of currencies, putting the euro dollar ratio back to a $1.20. This could very well be a reflection of the potential losses in economic growth from these disasters. $250 billion of damages in South Florida and $150 billion in Houston, according to a Credit Suisse analyst^1, may be the contributing factor.
The S&P 500 is down .65% over the last 4 weeks. If perceived in other currencies, it would be much higher.
The resiliency of the U.S. stock market may have less to do with the natural disasters and more to do with monetary policies currently in formation.
President Trump has negotiated to keep the government open and authorized a $15 billion dollar relief package, further delaying tax reform and addressing U.S. debt. He also has the unique opportunity to install 5 new fed governors into the central bank system, potentially influencing monetary policy for decades to come. The latter issue may be what the market is waiting for.
Nevertheless, a drop in the dollar should be a cause for concern as an investor. It may be time to overweight international stocks to insulate yourself from a declining dollar
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^1 Financial Times: Florida faces battle...