Two years ago, my wife and I were living in Islamorada, a four-mile long, quarter-mile wide island in the middle of the Florida Keys. It’s just 50 miles northwest of where the eye of Hurricane Irma made landfall.
Here’s a screenshot I took on the morning of September 10 as the Category 4 storm pummeled my home…
Note: KW is Key West; LT is Little Torch (official landfall); ISLA is Islamorada, where my house was; MIA is Miami.
It was a harrowing experience. And an expensive one!
As we prepped our house for the storm, evacuated to Orlando to avoid it, then returned home to assess and repair the damage, we spent a good deal of money on stuff I’ve barely used since.
Fifteen sheets of ¾-inch plywood ($600), 24-foot extension ladder ($250), 10,000-watt portable gas generator ($950), six 5-gallon gas cans ($200), 8,000 BTU window A/C unit ($250). We also bought flashlights, lanterns, and batteries ($300), two Yeti coolers ($600), tarps ($100), 18-inch chainsaw ($250), 16-gallon wet/dry shop-vac ($100)…
I’m probably forgetting some things, but you get the idea.
Home Depot Loves Hurricane Season
Hurricane season is predictable.
It officially runs from June 1 to November 30 each year. August, September, and October make up the meat of the season. And September 10 marks the seasonal peak.
Here’s a chart showing the seasonality of hurricanes…
As I said, hurricane season is a rather predictable phenomenon.
Each and every year, between August and October, you can expect increased odds of a storm heading your way.
That’s what “seasonality” is all about — increased or decreased odds of something happening based on what has historically tended to happen, with above- (or below-) average frequency during that time of the year.
And it works just the same in the stock market, which is why seasonality is one of the three primary factors I consider in my Cycle 9 Alert service.
Home-improvement retailer Home Depot (NYSE: HD) was the primary benefactor of my hurricane-spurred spending spree last year. I spent several thousand dollars that I otherwise wouldn’t have.
But last year wasn’t a one-off boost for the home-improvement giant.
In fact, over the last 20 years shares of Home Depot and Lowe’s (NYSE: LOW) have enjoyed a seasonal tailwind during peak hurricane season.
Have a Look for Yourself…
This chart shows the average profits earned from Home Depot. Only if you buy shares at the start of each calendar month and hold them for three months.
And this chart shows the very similar seasonal tendency for Lowe’s:
Clearly, both Home Depot and Lowe’s have enjoyed a seasonal boost during hurricane season for the last 20 years.
You may not believe that’s solely because of harried hurricane preppers. However, you can use this seasonality factor to your advantage to potentially make above-average profits in a short amount of time.
I happen to believe there are other factors influencing this pattern of seasonality for Home Depot and Lowe’s.
Consider the Seasonality in Residential Home Buying
Most folks don’t want to uproot their kids in the middle of a school year. So, the summer months tend to see an increase in home sales with the heightened buying activity trailing off come September, once school starts back. And, coincidentally, just as hurricane season begins.
It’s reasonable to think Home Depot and Lowe’s enjoy a boost from this seasonal buying pattern into residential real estate, too. That’s in addition to the seasonal tailwind of hurricane season.
Anyone who bought a new home in the summer months is likely to spend a little more on landscaping and home projects soon after. And those staying put in their current home are likely to take advantage of cooling temperatures to get work done, before winter hits.
So, it’s entirely possible that both hurricane season and the end of home-buying season work together to spur above-average gains in the stocks of Home Depot and Lowe’s.
Though, no matter what the reason, the data clearly show a season of strength for these stocks.
Why Seasonality Matters
If you’re looking to add a seasonally-advantaged stock play to your portfolio, Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) are great options.
I’ll note though that this trade didn’t work out last year since the broad market sell-off lasted roughly October through December.
But that’s precisely how seasonality works. It never guarantees an event or an above-average return will occur each and every year. Only that the odds are increased during this time of the year.
Regardless, Home Depot and Lowe’s now have seasonality working for them. And both are showing market-beating momentum, according to my Cycle 9 Alert algorithm.
The Consumer Discretionary sector is currently ranked second on my Cycle 9 Alert Leaders & Laggards Board. Which ranks each of the market’s sectors based on their forward-looking momentum.
The SPDR Consumer Discretionary Sector ETF (NYSE: XLY) holds shares of Home Depot as its second-largest holding at 11.2%, and shares of Lowe’s as its sixth-largest position at just under 4%.
So, if you’re looking for a more diversified play on U.S. consumer spending, buying shares of XLY is another great option to consider this time of year.