U-Turn in Transportation Stocks Signals Recession Angst Overdone
Truckers, rail operators and airlines — the groups represented in the Dow Jones Transportation Average — have done a U-turn since slumping to a two-year low Jan. 20, three weeks before broader market indexes bottomed.
They have outpaced the Standard & Poor’s 500 Index by 6.6 percentage points since then, maintaining their lead during a rally that’s restored more than $1.5 trillion to U.S. equities since Feb. 11.
For David Joy, chief market strategist at Ameriprise Financial Inc., which oversees $766 billion, the early rally in transportation stocks validated the group’s reputation as a leading indicator of economic strength.
Data since the industry bottomed has reduced recession anxiety, with reports showing a surge in hiring, a respite from manufacturing weakness and continued strength in the American consumer.
“There was clearly a signal in transports that may not have been so apparent if you weren’t paying attention,” Joy said. “They’re obviously a high-beta sector and general proxy for overall economic activity. The fact that the group is attracting some interest is also an important signal, at least temporarily.”
The Dow transports have rallied almost 14% since plunging to the lowest level since 2013 in January. Only one of the index’s 20 members has retreated since then, with Kansas City Southern’s 30% rally leading gains among railroad operators. Surges of more than 25% in United Continental Holdings Inc. and Ryder System Inc. have led airlines and truckers higher. Shares in the average rose 0.7% to close at 7,528.44 on March 9, near the highest level of the year.
Investors watch transportation shares because the market behavior of truckers and shippers tends to provide clues about the economy itself, since those industries form the infrastructure over which goods and services travel.
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|By Anna-Louise Jackson|
© 2016, Transport Topics, American Trucking Associations Inc.
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