If companies that move stuff around are indicative of the health of the “real” economy, at least one market average says the U.S. and the rest of the world are charting a very different courses.
True, optimism over stocks is so pervasive that the bulls hardly need another positive indicator, but they’ve got one anyway. The Dow Jones Transportation Average is notching new highs while clobbering the blue chips and broader market this year.
Indeed, the Dow Transports are up 16% for the year-to-date. The Dow Jones Industrial Average has gained just 3% so far. The broader S&P 500 has put up solid, steady and sleepy gains, but it’s still trailing the transports by about 8 percentage points.
The performance of the transports suggests that investors have ample faith in the recovery even five long years after the official end of the Great Recession and sets stocks up for a buy signal, according to the tenets of Dow Theory. If the Dow can confirm the new high in transports, we should go on yet another extended market run.
On the other hand, if the Dow fails to confirm the transport’s new highs, that suggests something is amiss in the market. No, it’s not a sell signal or a reason to short stocks, but it could mean we’re in store for a pullback.
Airlines are driving the transport gains. Yes, airlines are cyclical because they’re so dependent on business travel and disposable income, but they very much reflect the domestic economy. Take a look at the transports with exposure to the global economy, and you find nothing but weakness.
Top Dow Transports Stocks
The transports leaders are Delta Air Lines (DAL), which is up 42% for the year-to-date; JetBlue (JBLU), which has gained 46%; and Southwest Airlines (LUV), up an astounding 74%.
Railroads such as Norfolk Southern (NSC) and Union Pacific (UNP) are up 17% and 28%, respectively.
International Shippers Lagging
But the international shippers? They’re holding the transports average down.
FedEx (FDX) is up 6%, lagging both transports broadly and the market as a whole year-to-date. UPS (UPS) is off 6%. Matson (MATX) is up just 6%, while Expeditors International of Washington (EXPD) is down 6%. C.H. Robinson Worldwide (CHRW) is up 15%. That’s an excellent YTD return, but it still underperforms the transports average.
Bottom Line
The performance of the transports confirms what is already plain to see. The U.S. economy — and U.S. equities — are in far better shape than the rest of the world. After all, parts of the eurozone have fallen back into recession, while Asia is slowing markedly.
The Dow needs to notch new highs in the next few sessions in order to confirm the transports new high and generate a buy signal (Tuesday’s early action is not very reassuring).
Either way, the transports make the case for overweighting stocks that derive most of their revenues at home. On a broad basis, multinationals and overseas stocks are poised to trail the U.S. even more as the global economy continues to sputter.
No one is blown away by the performance of the U.S. economy, but at this point in the recovery, it’s pretty much the only game in town.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
