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Will the heat rally stick? New records put spotlight on AC and generator stocks

Mar 04, 2024

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Extreme temperatures are being notched across the globe as a series of intense heat waves and domes refuse to let up. Phoenix just recorded 110 degrees Fahrenheit for the 19th straight day, Rome witnessed its hottest temperature ever, as well as other records across parts of Asia, the Middle East and North Africa. Weather alerts continue to remain in place, while health warnings encourage people to stay in cool indoor areas and to drink water regularly even if they do not feel thirsty.

Blazing summer: In total, some 58M people across the U.S. are expected to experience triple-digit temperatures this week and around 100M people are under heat advisories. Parts of Northern states have also broken daily temperature records, but things are way worse across the Southwest and Deep South. "Take the heat seriously and avoid time outdoors," the National Weather Service warned in a bulletin. "Temperatures will reach levels that pose a health risk and are potentially deadly to anyone without effective cooling and/or adequate hydration. Heat is the leading weather-related killer in the U.S."

With power grid demand approaching record levels, industry leaders are talking about the energy market and the potential for new incentives surrounding additional power generation. There are also concerns about agriculture and farming, with water use going up to cool livestock and hydrate parched land and crops. Tourism is another economic worry in some parts of the country, with businesses forced to change their hours, while hot temperatures can jumpstart the wildfire season and prolong its devastating effects.

Stock watch: Shares of companies in the A/C space have been doing quite well, with Carrier Global (NYSE:CARR) soaring 17% over the past month, compared to the 4% gain of the benchmark S&P 500. Related stocks that also aren't cooling down include AAON (AAON), Comfort Systems USA (FIX), Lennox International (LII) and Watsco (WSO). Potential blackouts have additionally driven up demand for backup power, with generator stocks like Generac (NYSE:GNRC) seeing a 15% gain over the last month alone. When zooming out over a longer timeframe, generator providers like Caterpillar (CAT) and Cummins (CMI) are also up 30% and 50%, respectively, since last summer.

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