Long-haul Truck at Sunset

The Dow Jones Transportation Index, made up of 20 transport-related stocks from airlines to trucking companies, has lagged behind the overall Dow Jones Industrial Average by about 6.9 points since February, The Wall Street Journal reported.

Share prices of American Airlines, Norfolk Southern railroad, and J.B. Hunt Transport Services, a trucking and logistics company, each fell 8.5 percent or more during that time.

“Historically, transportation stocks have led in market recoveries but also sold off faster during economic downturns when demand for goods, material, and travel slow,” the WSJ noted.

“Transportation investors are taking a negative view of the economy and I think they will be proved right,” Mahmood Noorani, CEO of analysis firm Quant Insight, told the WSJ.

The U.S. is due for a short, shallow recession some time during the next 12 months, according to 61 percent of economists the WSJ surveyed.

Earlier this month, American Airlines cut its outlook for this year’s first-quarter results. Delta Air Lines reported a loss for the quarter and said travelers’ behavior is changing in unpredictable ways. The U.S. Global Jets ETF, which invests in airline stocks, lost 1.6 percent this month through 20 April.

“There are concerns about the recession, volatile oil prices, and this is as good as it gets from a demand perspective,” airline analyst Helane Becker at investment bank Cowan said to the WSJ.

J.B. Hunt, which the WSJ called a “bellwether” for the freight industry, reported first-quarter revenue declined more than expected and said that a “freight recession” is under way.

“We’re in a challenging environment where there is deflationary price pressure for an industry that continues to face inflationary cost pressures,” Hunt CEO Shelley Simpson said on a recent conference call.

Although a freight recession might have begun, optimistic analysts point to the strong jobs market and note that consumer spending in dollar terms remains strong, the WSJ said.

Analysts also see corporate profits in the weeks ahead as the U.S. Federal Reserve is likely to halt its campaign of interest rate increases.

Yields on the two-year treasury note, which is particularly sensitive to shifts in interest rates, peaked at a 15-year high above 5 percent last month but had fallen to 3.570 percent on 21 April but closed at 4.09 percent on Monday, April 24.

TREND FORECAST: Yields fall as bond prices rise with demand.

However, the lower yields fall the more investors put money back into the equity markets. Today, The Wall Street Journal reported that:

Corporate insiders raced to buy shares of their own companies after last month’s banking crisis, signaling a vote of confidence in this year’s market rebound.

More than 1,000 officers and directors at more than 600 companies bought their own stock in March. That is the highest number on an individual and company basis since last May, according to the Washington Service, an insider-trading data analytics provider. The ratio of insider buying to selling last month swelled to the highest level since September, the firm found.

However, Washington Service also notes that insider buying totaled about $800 million, compared with nearly $3.4 billion in selling in March.

Therefore, the guess on The Street is a guess, and the best guess of these “investors” to guess is that since the S&P 500 gained 16.3 percent for 12 months following the U.S. midterm elections… which were in November 2022, equities will keep rising. 

But again, should the Federal Reserve raise interest rates 25 basis points next Wednesday and inflation remain high with expectations they will raise them again in June, we forecast both equities and the economy will sharply contract. 

On the Street, the guess is that since the Fed’s expected end to interest rate hikes investors were persuaded to shift back to tech stocks which have driven the NASDAQ to outperform other indexes, rising 15 percent this year and 3.3 percent over the 30 days to April 21.

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