Dow Jones transportation stocks' woes could be a warning sign for the U.S. economy

[New Sancai Compilation and First Release] 2024 is a great year for the major U.S. stock indexes, but an economically sensitive corner of the market has become a sore spot. The Dow Jones Transportation Average has fallen about 5% so far this year, contrasting with the benchmark S&P 500's 9% gain so far and the 1% gain in the Dow Jones Industrial Average, which topped 40,000 in 2017.

While major indexes such as the S&P 500, Nasdaq and Dow are all hitting record highs in 2024, the Dow Transports index has yet to break its November 2021 record and is about 12% below that level.

Some investors say the woes of the 20-stock transportation index, which includes rail operators, airlines, package carriers and trucking companies, could signal economic weakness or prevent further sharp gains for the broader market unless they rebound.

Chuck Carlson, CEO of Horizon Investment Services, said the Dow is a "barometer of future economic activity." "They may indicate that while a recession is not yet imminent, the economy may be softening in the future." slow."

Weakness in the transportation sector is an example of how the tech-heavy S&P 500's rise, driven by large-cap stocks like semiconductor giant Nvidia, could overshadow the rest of the economy after the Federal Reserve adopted its most aggressive monetary policy tightening yet. Weak performance in the field.

Other troubled areas include small-cap stocks (which some analysts believe are more sensitive to economic growth than large-cap stocks), real estate stocks and some high-profile consumer stocks such as Nike, McDonald's and Starbucks.

Data this week showed that the U.S. economy grew at an annualized rate of 1.3% in the first quarter, lower than the 3.4% growth rate in the fourth quarter of 2023. The release of the U.S. monthly employment report on June 7 will be a key test of the strength of the economy and markets.

Among the Dow Jones transportation sectors, the worst performers so far this year are car rental company Avis Budget, down 37%; freight company JB Hunt Transport, down 21%; and American Airlines, down 17%.

Shares of major package carriers UPS and FedEx fell 13% and 1%, respectively, while Union Pacific and Norfolk Southern both fell about 7%. Only four of the 20 components have outperformed the S&P 500 so far this year.

Matthew Miskin, co-chief investment strategist at John Hancock Investment Management, said it may be harder for the market to rise sharply unless transportation gets a boost.

"What's happening internally in the market is up for debate, but it doesn't necessarily confirm that the S&P 500 as a whole is hitting a record high," Miskin said. "I think it does warrant some caution with certain modes of transportation being so weak."

Stocks have retreated this week, with the S&P 500 down more than 2% from its all-time high set in early May, and rising bond yields have raised concerns about stock market performance.

Not all investors believe the transportation index reflects the broader economy. The index is price-weighted like the Dow rather than market cap like many indexes, and contains only 20 stocks.

Meanwhile, another industry also considered an economic bellwether - semiconductors - is doing much better.

The Philadelphia SE Semiconductor Index is up 20% this year as investors flock to Nvidia and other excited chip companies poised to harness the commercial potential of artificial intelligence.

For Carlson, the overall market trend remains bullish, and he tracks both the Dow Transportation Index and the Dow Industrial Index to determine market trends, the so-called "Dow Theory."

But he said the fact that shipping closed on May 29 at the lowest level since November was concerning.

"That's not to say that industrial stocks and the broader market can't continue to move higher," Carlson said. "But I think as transportation hits new intermediate lows, the likelihood of doing that in a sustained manner becomes less likely."

(Compiled by: Wang Jimin)

(Editor: Jiang Qiming)

(Source of the article: Compiled and published by New Sancai)