New Highs for Transport Stocks Suggest Dow Rebound in Sight – Wall Street Journal

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Fresh highs for transportation stocks are viewed by some investors as a signal the Dow industrials will soon regain momentum.


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Shares of truckers, logistics operators and shipping companies are hitting fresh highs, a sign for investors that the Dow Jones Industrial Average could soon follow suit.

The Dow Jones Transportation Average, which includes 20 large companies ranging from railroad operator


to delivery firm United Parcel Service Inc., climbed Monday to its 11th record close of the year. After snapping out of a lull in August, the transport index is up 8.7% in 2018.

That is nearly double the gains of the Dow industrials. It has languished this month as tense trade negotiations have kept investors cautious.

What’s more, the Dow industrials haven’t notched a record high in eight months. That is the longest drought for the average since it went without a new high for 289 trading days through July 2016, according to Dow Jones Market Data.

The index is the only one of the major U.S. benchmarks not to have eclipsed its January high. The S&P 500 hit a series of new highs last month, while the Nasdaq Composite and Russell 2000 have climbed fairly steadily in recent months. The Dow industrials remain 2.4% below this year’s Jan. 26 high.

The breakout by transportation stocks is viewed by some investors as a signal the Dow industrials will soon regain momentum. At least, that is the belief of proponents of what is known as Dow Theory.

The roughly century-old theory says transportation stocks are a barometer of the health of the U.S. economy, tending to rise when businesses that ferry raw goods and materials are in demand and retreat when the economy looks poised for a slowdown. When the transport index hits new records, those who track the Dow Theory believe the broader stock market often follows suit.

“These stocks move and transport everything we buy and sell,” said Chris Verrone, a partner and head of technical strategy at brokerage and advisory firm Strategas. “When you look historically, it’s hard to find examples of a bull market ending with transportation stocks at new highs.”

Railroad stocks have powered much of the transport index’s gains this year as a solid U.S. economy has helped lift demand for cross-country transport. CSX has climbed 35%,

Norfolk Southern

has advanced 23%, and

Union Pacific

is up 17%.

More recently, shares of trucking and logistics firms have also rebounded, pointing to broadening strength among transportation companies.

Many such companies have benefited from a boom in demand for freight services by retailers, factories and consumers. This has squeezed truck availability and, in turn, driven the longest sustained period of pricing growth for truckers since 1980, according to online freight marketplace DAT Solutions.

J.B. Hunt Transport Services

reported in July that second-quarter earnings soared 55% from the year-earlier period. Its shares are up 10% this year. Fellow trucking company

Landstar System

has risen 23%.

Meanwhile, a handful of airline shares have regained ground. They slumped in the year’s first half on fears a price war could squeeze profit margins.

Shares of

United Continental Holdings

whose revenue growth helped offset a jump in fuel prices over the summer, have climbed 32% this year.

Delta Air Lines


American Airlines Group

while down for the month of August, have added more than 6% apiece over the past four weeks.

“Everything we see today says demand is strong,” United President Scott Kirby said on the company’s July earnings call.

Analysts caution that headwinds remain. Transportation stocks broadly slumped in June as a trade dispute between the U.S. and China heated up.

Those tensions revived fears among investors of tariffs slamming economic growth and stalling companies’ investment plans. The transport index has held its ground this month even though President Trump has threatened a third round of tariffs on Chinese goods. Shares elsewhere, though, have come under pressure, raising the prospect of a broader decline.

Hong Kong’s Hang Seng Index and the Shanghai Composite are trading in bear-market territory, or 20% off recent closing highs. Trade-sensitive companies in the U.S. like



Century Aluminum


United States Steel

have all fallen more than 2.5% apiece in September.

Another risk: Oil prices, which have backed off highs hit in the middle of the summer, could spike again. That could force airlines to once again cut flights and raise fares.

So far, few investors see signs of an imminent slowdown. Data in recent weeks have shown the U.S. economy grew faster than initially estimated in the second quarter. Wages accelerated at the fastest pace of the current economic cycle and the unemployment rate continued to trend below 4%.

Corporate earnings are also projected to extend a streak of double-digit growth in the third quarter. If that happens, it could reassure investors who had been worried that tariffs would hit multinationals’ profits.

The transports aren’t a “perfect indicator,” Mr. Verrone said. But their gains still suggest that the economic backdrop remains “relatively robust here.”

Write to Akane Otani at