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El Niño and La Niña: Two Natural Events Affecting the Market
Published on Feb 2, 2022

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Every couple of years, two little siblings take turns in tormenting global markets. El Niño and La Niña (meaning “boy” and “girl” in Spanish) take the shape of hot and cold waters traveling across the Pacific Ocean from South America to Southeast Asia, unfolding all sorts of horrific scenarios.  


In normal Pacific times, trade winds (those blowing east to west just north and south of the equator) blow across the ocean, carrying warm waters from South America to the western shores of Asia, leaving behind resurfacing cold water in a phenomenon known as upwelling. 


But sometimes, one of the two siblings makes an appearance when unusual changes in ocean temperature occur. El Niño pays his respects when trade winds are not strong enough to carry warm water all the way west of the Pacific and instead settle east. When trade winds are stronger than expected, La Niña shows up, pushing the warm water towards Asia with increased upwelling. This movement uplifts nutrient-rich cold waters from the depths of the ocean. 


El Niño’s temperate waters bring warmth and dryness to the northern parts of the U.S. and Canada, in addition to Central America, Southeast Asia, and Europe, while the rest of the globe experiences wetter-than-usual seasons. Meanwhile, La Niña has the opposite effect. Both events are characterized by mild and other times severe cases of crop damage, forest fires, and drought, lasting between 9 to 12 months on average.  


El Niño and La Niña are usually accompanied by weak monsoon seasons that cause severe damage to the Indian agriculture market. While heavy rain seasons in Brazil delay sugar harvest and dryness in Indonesia impacts the mining of copper and other crops. These ramifications play a significant role in shaping global prices and many nations’ financial performances and political stability. These extreme weather patterns also affect the production of raw materials – such as corn and potassium salts, manufacturing, and transportation. The 2014 droughts in Southeast Asia stand testimony to the horrifying effects of El Niño, which led to a devastating manufacturing crisis. 

During the occurrence of an El Niño or a La Niña event, some regions of the world get hit by floods and others by droughts, disrupting transportation and supply chains. Thus driving markets and subsequently stocks to boom or crash. 
Since late 2020, the Northern Hemisphere has been undergoing consequent waves of La Niña, which plays a significant role in the current supply chain crisis, food price inflation, and many of the Fed’s latest decisions. Hence, placing El Niño and La Niña as critical factors in determining recent and upcoming stock market trends

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