IS THE TRANSPORTATION CANARY SINGING A SONG ABOUT RECESSION?
It's been a tumultuous year for stocks, with uncertainties
mounting over the Trump administration's erratic tariff actions
and other unpredictable policy decisions shaking investor
confidence and raising the possibility of a potential recession
instead of the Fed's "soft landing" scenario which seemed within
reach last year.
Every asset class has ridden the roller coaster this year,
but the Dow Transports has suffered a worse year than
most (housing and specifically airlines are
two exceptions). And the DJT has the dubious distinction of
being considered by many to be an economic canary in the coal
mine.
"The transportation average is one of the best barometers
for future economic activity and there has been a fair amount of
uncertainty" as to whether or not we're on the verge of a
recession and the possibility that tariffs could "push us over
the edge," Chuck Carlson, chief executive officer at Horizon
Investment Services, tells Reuters.
"It seems to me the potential tariffs will have a pretty
significant impact on transportation companies in general,
especially those that are moving product internationally,"
Carlson adds. "They’re more sensitive to the things that I think
investors are most concerned about right now."
While there are only 20 stocks in the index they are widely
diverse. It includes airlines, rail carriers, package delivery
firms, truckers, logistics, and in the case of recently added
Uber Technologies , a ride-hailing app.
So in the face of the ongoing tariff kerfuffle, which of
these stocks are more at risk?
"When you start dissecting the index, those that directly
deal with the consumer are doing better than those that are
in shipping, whether it's stuff coming in internationally or
from Mexico or Canada, or even within the United States,"
Carlson says.
All of which begs the question: with the DJT down about 7%
so far this year, is this coalmine canary singing a song about
an impending economic downturn?
"We're at a pretty good pivot point," Carlson says. "And if
in fact the Dow Jones Transportation average tests its April
lows, that really ups ante for a potential recession for later
this year."
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