Severe Weather Could Hit Markets This Year: Schwab's Kleintop

North and South America have also seen weather disruptions already, he noted, citing copper mining industry problems caused by heavy rain in Chile, the millions of people affected by wildfires in Canada and excessive-heat warnings in the U.S.

"If these impacts continue to threaten agriculture, energy and lives, or worsen — as forecasters expect — the economic impact could be significant for both inflation and economic activity," Kleintop wrote. "The inflation impacts of extreme weather are likely to be concentrated in food and energy, potentially pushing overall inflation higher in the coming months."

Low water levels could limit hydroelectric generation, fueling energy inflation, and freight transportation costs could rise if river traffic is hobbled, he said. Drought and poor crop yields could push food prices higher, he noted, adding that rice prices are their highest in two years as importers, concerned about potential El Niño-related supply problems, have started stockpiling the grain.

"Some central banks may need to keep rates higher for longer to combat inflation should  high food prices persist, particularly in emerging and frontier markets," Kleintop wrote.

"Extreme weather heightened by El Niño could bring market volatility, should history repeat. El Niño may result in disruptions to food production, impact the movement of goods and price of energy, cause hurricane losses for insurance companies, create geopolitical unrest, and keep rates higher for longer in some countries — particularly in emerging markets.

Weather of course is difficult to forecast — as are markets — but the potential impacts are worth considering by investors," he said.

(Image: wildfire smoke in Calgary, Alberta; photo: Todd Korol/Bloomberg)