Transportation stocks tend to be a leading economic indicator. The theory goes that before you can sell the goods you have to move the goods. Train, plane, and truck businesses are some of the first to see a pickup in demand or a drop in demand. When transportation stocks break down, it is an indication of potential trouble for the market and economy.
The Dow Transports have been in a relative downtrend versus the Dow Industrials for the last year and half, and Young Research’s Moving the Goods Index—a measure of the performance of non-airline transportation stocks has also been in a downtrend.
When the transports signal potential trouble ahead as they do today, it is no time to try to be a hero with your investment portfolio.
Jeremy Jones, CFA
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