Connect with us

Commodities

Charted: Commodities vs Equity Valuations (1970–2023)

Published

on

Subscribe to the Elements free mailing list for more like this

Charted: Commodities vs Equity Valuations (1970–2023)

Charted: Commodities vs Equity Valuations (1970–2023)

This was originally posted on Elements. Sign up to the free mailing list to get beautiful visualizations on natural resource megatrends in your email every week.

In recent years, commodity prices have reached a 50-year low relative to overall equity markets (S&P 500). Historically, lows in the ratio of commodities to equities have corresponded with the beginning of new commodity supercycles.

The infographic above uses data from Incrementum AG and Crescat Capital LLC to show the relationship between commodities and U.S. equities over the last five decades.

What is a Commodity Supercycle?

A commodity supercycle occurs when prices of commodities rise above their long-term averages for long periods of time, even decades. Once the supply has adequately grown to meet demand, the cycle enters a downswing.

The last commodity supercycle started in 1996 and peaked in 2011, driven by raw material demand from rapid industrialization taking place in Brazil, India, Russia, and China.

Supercycles in Commodity Prices 1899-19321933-19611962-19951996-2016
Peak year1904194719782011
Peak of supercycle from long-term trend (%)10.214.119.533.5
Trough of supercycle from long-term trend (%)-12.9-10-38.123.7
Length of cycle from trough-to-trough (years)33293420
Upswing (years)5151716
Downswing (years)2814174

Source: Bank of Canada, IHS

While no two supercycles look the same, they all have three indicators in common: a surge in supply, a surge in demand, and a surge in price.

In general, commodity prices and equity valuations tend to have a low to negative correlation, making it rare to see the two moving in tandem in the same direction for any long period of time.

Commodity Prices and Equity Valuations

In line with the above notion, commodity prices and equity valuations have often been at odds with one another in past market cycles.

During the 1970s and early 1980s, for example, rising oil prices led to a significant decline in stock prices as higher energy costs hurt corporate profits. In contrast, during the first half of the 2000s, low oil prices were accompanied by a strong equity bull market that ended with the 2008 stock market crash.

The relationship, however, is not always straightforward and can be affected by various other factors, such as global economic growth, supply and demand, inflation, and other market events.

With the most recent commodity supercycle peaking in 2011, could the next big one be right around the corner?

Click for Comments

Markets

Panama Canal Traffic by Shipment Category and Tonnage

This graphic illustrates Panama Canal traffic by shipment category, looking at the total number of shipping crossings and the total tonnage.

Published

on

Panama Canal traffic has been steadily restricted due to severe drought, affecting supply chains for U.S. and Asian importers. This graphic illustrates the total number of shipping crossings at the Canal throughout 2023.

Panama Canal Traffic by Shipment Category and Tonnage

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Daily Panama Canal traffic has been steadily restricted to start the year, with an expected peak reduction of over 40% by February 2024 due to severe drought. The problem is already affecting supply chains for U.S. and Asian importers.

This graphic illustrates the number of shipping crossings by market segment at the Canal and the net tonnage carried during the Annual Fiscal 2023 (October 2022 to September 2023). Data is from the Panama Canal Authority.

About the Panama Canal

The Panama Canal is an artificial 82-kilometer (51-mile) waterway that connects the Pacific Ocean with the Atlantic Ocean, built between 1904 and 1914.

The Canal locks at each end lift ships to Gatun Lake, an artificial freshwater lake 26 meters (85 ft) above sea level. The shortcut dramatically reduces the time for ships to travel between the two oceans, enabling them to avoid the route around the southernmost tip of South America via the Drake Passage or Strait of Magellan.

The Panama Canal moves roughly $270 billion worth of cargo annually–it’s the trade route taken by 40% of all U.S. container traffic alone and handles about 5% of all global maritime trade.

The Driest October in 70 Years

Last October, however, Panama received 41% less rainfall than usual, leading to the driest October in 70 years in what was supposed to be Panama’s rainy season, bringing the level of the Gatun Lake almost six feet below where it was a year ago. Additionally, infrastructure constraints led the Panama Canal Authority to restrict the number of ships that could pass each day.

The principal commodity groups carried through the Canal are motor vehicles, petroleum products, grains, coal, and coke.

Market SegmentTransits (#)Net Tonnage (thousands)
Container2,787192,760
Dy Bulk2,64974,549
Chemical Tankers2,19648,825
Liquefied Petroleum Gas1,75764,969
Vehicle Carriers81349,871
Refrigerated5465,610
General Cargo5196,655
Crude Product Tankers49916,052
Liquefied Natural Gas32637,001
Other3061,718
Passengers24012,361
Total12,638510,370

According to the Panama Canal Authority, most of its traffic came from containers and dry bulk like soybeans. The world’s largest operator of chemical tankers (Stolt-Nielsen) typically also uses the Canal. However, due to the drought and the backup at the crossing, the operator has decided to reroute its fleet to the Suez Canal.

Although representing the smaller number of crossings, the Canal is also an important route for passengers, with many ocean cruise lines offering popular Panama Canal itineraries that sail through the Canal in the approximately 8-hour passage to their next destination in the opposite ocean.

Continue Reading
MSCI Direct Indexing

Subscribe

Popular