The S&P 500 declined 7 basis points in July, bringing its year-to-date total return to 10.14%. The Bloomberg U.S. Aggregate Bond Index declined 131 basis points for the month, leaving its year-to-date return at -0.69%. The S&P 500 Equal Weight Index gained 101 basis points in July, bringing its year-to-date return to 13.26%. In an environment where five stocks – Nvidia (NVDA), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Meta Platforms (META) – make up approximately one-quarter of the S&P 500, sentiment toward AI and its perceived winners largely determined the index’s returns. Many investors who believed in June that all of these companies had impregnable moats now fear that some will be burdened by capital spending and challenged by open-source models, while Nvidia faces an onslaught of Chinese competition. Much of the SpaceX (SPCX) FOMO has, 45 days later, been replaced by FOLI (Fear of Losses on Investment). With the combined market capitalization of all publicly traded U.S. oil and gas midstream energy infrastructure stocks below that of SPCX alone, we remain focused on fundamentals, which in this sector outweigh fashion and media hype in determining performance.
Between July 6 and July 8, the MOU between the U.S. and Iran fell apart. We do not know whether the breakdown is temporary or will last for months. To quote one shipping executive, “the status quo is that there is no status quo.” We do know that shippers have had to find alternative sources and routes for crude and refined products, resulting in longer voyages and less available capacity. Attacks by the Houthis have added 30 days to the time required for crude oil shipped from the Saudi Red Sea port of Yanbu to reach Asia, creating a need for 40 additional VLCCs, or approximately 4.2% of the world fleet. Investors are just beginning to price in disruptions across four major shipping corridors: the Strait of Hormuz, the Red Sea, the Black Sea, and the Panama Canal. In July, we saw continued opportunities to put capital to work in dry bulk shipping and offshore service vessels.
Few bets in shipping are surer than taking the opposite side of Brussels and the IEA. No government bureaucrats anywhere can hold forth on art history, tourism, and architecture like EU mandarins. They simply do not see value in providing plentiful and affordable energy to their citizens and their shrinking industrial base. Europe faces a significant risk of a natural gas shortage this winter. We are past the midpoint of the injection season, inventories remain low at 55% of storage targets, and weak seasonal spreads limit LNG imports. None of this is surprising. Their failure to prepare for the winter of 2026-2027 is bullish for our LNG-exposed investments, as well as for coal transportation (dry bulk shipping).
Investing in shipping is like taking a bus. If you miss one bus, there is always the next one.
