Transportation investors are taking a negative view of the economy and I think will be proved right.
Mahmood Noorani, CEO at Quant Insight
Charles Dow’s original theory of stock movement considered industrial companies who make things and transport companies who ship them. One index needs to confirm the other up or down to provide clues on market direction.
The 20 transport stocks have dropped 6.9% since February. Three of them constitute what we might call the bad news bears and are down 8.5%. Our bear market contention is alive and well.
A Norfolk Southern train derailed in Palestine Ohio in February. The literal train wreck dumped hazardous chemicals which caught fire. Norfolk pledges to spend whatever is required to restore Palestine.
American Airlines lowered earnings expectations for the first quarter. Delta reported a first quarter loss.
J.B. Hunt reports lower than expected revenue. It expects what it terms a ‘freight recession.’
The seasonal high in stocks is or was due April 20. This typically happens after tax filing. The indicators seem aligned for lower stock prices.
And a recession is well underway in commercial real estate. Houston has an office vacancy rate of 25%. San Antonio is about 16%. Despite this, Graham Weston is planning multiple new downtown properties in San Antonio. This is a repeat of a similar boom in 1928-29 which resulted in canceling what would have been a large Tower Life complex. I attended a CFO roundtable yesterday. The topic however was not accounting. Rather it was how to balance work from home with ‘hey once in a while we need you in the office.’ The thinking seemed to be that work from home is now a permanent fixture of the job market. In that case, commercial real estate will undergo the same travails as retail footage former shopping malls, what to do with all the empty space?
That original Tower Life building will attempt a re-model into residences. But that is expensive. Yet another headline is a slowing home mortgage market given higher interest rates. That is not encouraging for residential conversions.
The price of lead leads the Consumer Price Index. Lead prices are up, expect another round of inflation.
This column went bullish on crude oil prices a few weeks back. A four dollar jump left a gap in the West Texas Intermediate chart. That gap is being filled this week with prices at $77.71 below the recent $80 level. Our expectation is that the $75 level will provide support. Recall both Saudi and Russia are cutting production while Team Biden continues its war on anything carbon.
