Railroads



The stock market’s rebound since the year’s low on June 1 is impressive. The S&P 500 is up 7.4% since then. It certainly belies the notion that the US economy is on the verge of a recession or that it is at risk of stalling into one. The market certainly seems to be ignoring the fiscal cliff scenario so far, even though Fed Chairman Ben Bernanke seemed quite alarmed about it in his congressional testimony this week.

Confirming this upbeat sentiment is the Transportation index of the S&P 500. It is up 0.5% so far this week, back to the year’s high and only 2.7% below last year’s record high. The Railroads stock price index is back at its record high. This industry accounts for 44% of the market capitalization of the S&P 500’s Transportation index. The Air Freight & Logistics stock price index has also rebounded recently despite plenty of signs that global economic activity is slowing. The forward earnings of both industries are at record highs.

While there is much angst about the economy’s “stall speed,” rail freight traffic seems to be picking up. This is especially so if we exclude car loadings of coal, which have been depressed by the warm weather and the switching of fuel sources to cheap natural gas. Let’s review the latest data (using 26-week averages to reduce the seasonal volatility) through the week of July 7:

(1) Total railcar loadings excluding coal have rebounded in recent weeks back to a cyclical high. The same can be said for car loads excluding coal.

(2) Total intermodal loadings is approaching last year’s cyclical high. Excluding trailers, intermodal loadings of containers is back at a new cyclical high.

(3) Loadings of both motor vehicles and lumber products rose to new cyclical highs during the first week of July, auguring well for the auto and housing industries.

Today's Morning Briefing: Earnings Outpacing Revenues. (1) Stocks rise despite gloomy Ben. (2) An uptick in earnings estimates. (3) Revenues estimates getting cut. (4) Margins holding up. (5) Decoupling attributed to accounting magic. (6) So far, the market isn’t buying recession scenario. (7) Transportation stocks aren’t stalling. (8) Rail freight is chugging along, especially excluding coal loadings. (9) Housing is recovering. (10) Government is the issue on the campaign trail. (More for subscribers.)