Tuesday, November 19, 2013

US Transportation Stocks (excerpt)

It’s good to see that the US economy continues to be an important source of strength for the global economy. Over the past few years, there has been a close correlation between the CRB raw industrials spot price index and the S&P 500 Transportation Index. Since the summer of 2012, the former has been relatively flat, while the latter has gone on to make numerous new record highs during 2013.

I view the commodity index as a sensitive indicator of global economic growth that has been especially sensitive to the pace of growth in China. The Transportation Index tends to be a more US-centric economic indicator. Its bullishness is confirmed by railcar loadings. Total loadings rose to a cyclical high in early November. Intermodal loadings rose to a record high. The ATA Trucking Index also rose to a new record high in September.

Not surprisingly, the forward earnings of the S&P 500 Transportation Index rose to a new record high in mid-November. The same can be said for the forward earnings of the S&P 500 Railroads industry, which accounts for 45% of the market cap of the Transportation Index. The fact that forward earnings is also at a record high for S&P 500 Air Freight & Logistics suggests that the global economy is not as weak as suggested by the flat trend in global exports. Of course, the recent weakness in oil prices is also a bullish development for transportation stocks.

Today's Morning Briefing: Bubble Balderdash. (1) Financial press is bubbling about bubbles. (2) Yellen doesn’t see any. (3) Summers says we need them. (4) Krugman agrees and wants negative deposit rates. (5) A bubble in Keynesians and their flawed models. (6) Summers says beware of Asiaphoria because slowdowns happen. (7) Another big bang in China? (8) Five-step reform program. (9) China MSCI is cheap. (10) Focus on overweight-rated S&P 500 Transportation stocks. (More for subscribers.)

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