Suez Canal vs. Cape of Good Hope

Earlier this Houthi rebels in Yemen attacked ships on the Red Sea. This caused many shipping firms to re-re-route their ships around the Cape of Good Hope instead of via the Suez Canal. According to LSEG Shipping Research, the alternative route takes an extra up to two weeks and adds an additional fuel costs of an estimated $1.0 million per sailing on trade between Europe and Asia.

The following map shows the Suez Canal vs. Cape of Good Hope route:

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Source: Red Sea shipping crisis worsens after Israel-Houthi attacks, Deutsche Welle

U.S. Crude Oil Production by State: Chart

The U.S. is one of the large crude oil producing countries in the world. According to the EIA, the top five countries in 2022 were the US, Saudi Arabia, Russia,Canada and Iraq.

In the US, crude oil produced in 32 states and offshore. However just five states accounted for about 72% of the total production in 2022. These states are Texas, New Mexico, North Dakota, Colorado and Alaska. The chart below crude oil production by state in that year:

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Source: Oil and petroleum products explained -Where our oil comes from, US EIA

How Concentrated is the US Equity Market?

The concentration in the US equity market has been running relatively high for the past few years. I have written many times on this topic as can be found here and here and here. Most of the time, I have discussed the concentration using the S&P 500 as the benchmark. However I came across an article recently that showed the market concentration extends to all US stocks and that the level of concentration is reaching historic peaks. For instance, the current concentration levels exceed the dot-com, nifty-fifty, post World War II eras and is heading towards the Great Depression era peak. This is indeed surprising.

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Source: What performs best after peaks in market concentration?, by Benjamin R. Nastou, Derek W. Beane, Jonathan Perlman at MFS Investment Management, Australia

I agree with the authors that high concentration does not mean a major decline is coming to the markets but it is wise to pay attention to such facts and make one’s investment decisions accordingly.

Related ETFs:

  1. SPDR S&P 500 ETF (SPY)
  2. iShares Core S&P 500 ETF (IVV)
  3. Vanguard S&P 500 ETF(VOO)
  4. SPDR Portfolio S&P 500 ETF  (SPLG)

Disclosure: No positions

On The Returns of S&P 500 During Recessions

Recessions are generally negative for equity returns. During recessions, economic contraction leads to lower production and consumption leading to hurt sales for companies. Currently the US economy is holding up but nobody knows if it will slip into a recession later this year or early next year. As a consumption-based economy, the US consumer hasn’t slowed down spending.

From an investor perspective, it is important to keep an eye on the direction of the economy. One report by Schroders showed that the S&P 500 generates a negative return during recessions. However in the late stages of a recession, the index yields a positive return as shown below:

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Source: Ten key themes for 2023 and beyond, Schroders

For long-term investors recessions are bad. Since it is almost impossible to predict when a recession would end it is highly unlikely for anyone to make a profit with stocks while the economy is in recession. Most investors are likely to ride out the recession though they may not add new funds to the market.

Related ETFs:

  1. SPDR S&P 500 ETF (SPY)
  2. iShares Core S&P 500 ETF (IVV)
  3. Vanguard S&P 500 ETF(VOO)
  4. SPDR Portfolio S&P 500 ETF  (SPLG)

Disclosure: No position