The S&P 500 Transportation stock price index is only 5.6% below its record high of last July. The DJIA Transportation index is only 8.0% below its record high. That’s impressive given all the chatter last summer that the economy was growing at “stall speed” and could be heading into a recession.
I was in the “soft-patch” camp last spring. At the end of last summer, I was back in the “hard-patch” camp. It’s hard to worry that the economy is about to stall when the Transports are flying high. Nevertheless, we should stay close to the facts on the ground. Here are two relationships that we are monitoring closely:
(1) The S&P 500 Transportation index has been highly correlated with the CRB industrials spot price index. The former has been tracking the latter very closely since 2007. There has been a bit of divergence since early October of last year when the Transportation index rebounded sharply while the commodity index continued to fall. Commodity prices have firmed over the past few days on the perception that the Chinese authorities intend to stimulate their economy to keep it growing rapidly.
(2) The S&P 500 Transportation index also tends to track railcar loadings and truck tonnage. Although the Railroads industry accounts for 44% of the market capitalization of the S&P 500 Transportation index, the overall index isn’t as highly correlated with weekly railcar loadings or monthly truck tonnage as it is with the commodity index. Nevertheless, the underlying trends do coincide. Railcar loadings remained at a cyclical high during the first week of the new year at the highest pace since the end of 2008. The ATA Trucking Index (which measures tonnage) rose for the third straight month in November, matching its highest reading since January 2011 (which was the best since February). (More for subscribers.)