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The Great Lakes Economy: The Growth Engine of North America

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We don’t often think about the states and Canadian provinces surrounding the Great Lakes as its own economy – but maybe we should.

After all, the region is tightly integrated in terms of trade. It alone accounts for more than 50% of all U.S./Canadian bilateral border trade and sees over 200 million tons of cargo shipped annually. If it were its own country, it would have a GDP of US$6 trillion – making it the third biggest economy in the world.

An Economic Powerhouse

Today’s infographic comes from the Council of the Great Lakes Region, and it breaks down the massive economic impact and trade partnerships that stem from the region’s prolific waterways, and the people living around them.

The Great Lakes Economy: The Growth Engine of North America

The Great Lakes Region has always been a center of trade. From the fur trade of the 17th century to modern day, the area’s navigable terrain, waterways, and ports have made it an easy place for goods to exchange hands.

Overview: The Great Lakes Economy

The Great Lakes Region includes eight states (Minnesota, Wisconsin, Illinois, Indiana, Michigan, New York, Ohio, and Pennsylvania) and two Canadian provinces (Ontario and Quebec) that surround the five interconnected freshwater bodies known as the Great Lakes. The area is home to 107 million people, 51 million jobs, and a GDP of US$6 trillion – making the Great Lakes Economy a powerhouse on an international level.

In particular, the region is well-known globally for its manufacturing prowess. It’s home to automobile and aerospace giants like Ford, GM, Chrysler, Bombardier, GE Aviation, and Magna International, and also many other diverse industries. Education and health, shipping and logistics, agriculture, mining and energy, tourism, and finance are some of the other major industries that generate business for the region.

And despite having a border, the Great Lakes Economy is highly integrated. Each year, there is $278 billion in bilateral U.S.-Canadian trade in the Great Lakes area – more than the entire region trades with countries like Mexico, China, UK, Germany and Japan combined.

Cross-Border Customers

The relationship between U.S. states and Canadian provinces in the Great Lakes Region is unique, and relies on goods flowing both ways.

For U.S. companies in the region, 78% of the imports they bring in from Canada are “intermediate goods”, which are raw materials, parts and components, and services that are used to produce other goods and services in the United States.

Here’s a breakdown of Canadian intermediate goods bought by U.S. states:

RankStateCanadian imports (Intermediate Goods, $USD)
#1Illinois$25.5 billion
#2Michigan$15.7 billion
#3New York$11.6 billion
#4Ohio$9.9 billion
#5Minnesota$7.6 billion
#6Pennsylvania$7.4 billion
#7Indiana$5.3 billion
#8Wisconsin$3.0 billion
Total$86.0 billion

Going the other way, Canadians buy billions of dollars worth of goods from the Great Lake states as well.

In fact, Canada is actually the biggest international customer for each state in the region – something we’ve previously shown in our USA/Canada trade infographic as well.

Bridge Over Troubled Water

Although rhetoric against the U.S./Canadian trade relationship has ramped up in the recent months, there is still one enduring symbol that exemplifies the intimate trade relationship of the two countries in the Great Lakes Economy: the Ambassador Bridge between Detroit, Michigan and Windsor, Ontario.

Each day, over this one 1.3 mi (2.3 km) suspension bridge alone, close to 10,000 trucks pass to generate close to US$500 million of international trade between the two nations.

That’s equal to 25% of all bilateral trade between Canada and the U.S. Amazingly, more bilateral trade happens over this single bridge than the U.S. does in its entirety with France, Germany, South Korea, or the United Kingdom.

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Markets

Beyond Big Names: The Case for Small- and Mid-Cap Stocks

Small- and mid-cap stocks have historically outperformed large caps. What are the opportunities and risks to consider?

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A line chart showing the historical return performance of small-, mid-, and large-cap stocks.

 

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The following content is sponsored by New York Life Investments
An infographic comparing low-, mid-, and large-cap stocks, including an area graph showing historical returns, a bubble chart showing how much $100 would be worth over 35 years, a horizontal bar graph showing annualized volatility, and a line graph showing relative forward price-to-earnings ratios, that together show that mid-cap stocks present a compelling investment opportunity.

Beyond Big Names: The Case for Small- and Mid-Cap Stocks

Over the last 35 years, small- and mid-cap stocks have outperformed large caps, making them an attractive choice for investors.

According to data from Yahoo Finance, from February 1989 to February 2024, large-cap stocks returned +1,664% versus +2,062% for small caps and +3,176% for mid caps.  

This graphic, sponsored by New York Life Investments, explores their return potential along with the risks to consider.

Higher Historical Returns

If you made a $100 investment in baskets of small-, mid-, and large-cap stocks in February 1989, what would each grouping be worth today?

Small CapsMid CapsLarge Caps
Starting value (February 1989)$100$100$100
Ending value (February 2024)$2,162$3,276$1,764

Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.

Mid caps delivered the strongest performance since 1989, generating 86% more than large caps.

This superior historical track record is likely the result of the unique position mid-cap companies find themselves in. Mid-cap firms have generally successfully navigated early stage growth and are typically well-funded relative to small caps. And yet they are more dynamic and nimble than large-cap companies, allowing them to respond quicker to the market cycle.

Small caps also outperformed over this timeframe. They earned 23% more than large caps. 

Higher Volatility

However, higher historical returns of small- and mid-cap stocks came with increased risk. They both endured greater volatility than large caps. 

Small CapsMid CapsLarge Caps
Total Volatility18.9%17.4%14.8%

Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.

Small-cap companies are typically earlier in their life cycle and tend to have thinner financial cushions to withstand periods of loss relative to large caps. As a result, they are usually the most volatile group followed by mid caps. Large-cap companies, as more mature and established players, exhibit the most stability in their stock prices.

Investing in small caps and mid caps requires a higher risk tolerance to withstand their price swings. For investors with longer time horizons who are capable of enduring higher risk, current market pricing strengthens the case for stocks of smaller companies.

Attractive Valuations

Large-cap stocks have historically high valuations, with their forward price-to-earnings ratio (P/E ratio) trading above their 10-year average, according to analysis conducted by FactSet.

Conversely, the forward P/E ratios of small- and mid-cap stocks seem to be presenting a compelling entry point. 

Small Caps/Large CapsMid Caps/Large Caps
Relative Forward P/E Ratios0.710.75
Discount29%25%

Source: Yardeni Research (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.

Looking at both groups’ relative forward P/E ratios (small-cap P/E ratio divided by large-cap P/E ratio, and mid-cap P/E ratio divided by large-cap P/E ratio), small and mid caps are trading at their steepest discounts versus large caps since the early 2000s.

Discovering Small- and Mid-Cap Stocks

Growth-oriented investors looking to add equity exposure could consider incorporating small and mid caps into their portfolios.

With superior historical returns and relatively attractive valuations, small- and mid-cap stocks present a compelling opportunity for investors capable of tolerating greater volatility.

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