Can the Dow Jones Transports break out? When we try to figure out if this part of the rally, the one that began just before the appointment of the special prosecutor to look into the administration's bizarre relationship with Russia, we have to look at this index as confirmation of a series of Standard & Poor's record closes.
As it stands, we are way off the March 1 high of the index, which, I think, is a testament to the narrowing of this rally. We've been all about a series of highest tech gainers since then, and it's become a bit of an exercise in high-flying that us old timers want desperately to be validated by this index explicitly devoted to commerce.
Why not? We know we aren't driven by the financials, because with the exception of the stocks of a couple of credit card and insurance companies there's been a total "nothing done" from the group. We know that the industrials have become hit and miss, with the misses those tied in to the oil industry in some way, shape or form. We know that retail's got nothing to do with it, unless we are talking about Amazon (AMZN) and Costco (COST) .
So, we default to the transports -- a group that's up about 13% but hasn't been a real leader -- to monitor the real health of the moment. We do this since the power of FAANNG -- with two As, Action Alerts PLUS charity portfolio holding Apple (AAPL) and Amazon and two Ns, Netflix (NFLX) and Nvidia (NVDA) -- has become, let's say, long in the tooth, with little pullback during the extension.
The first thing you notice with the transports is how few stocks are doing the heavy lifting and hwo two of the best performers are related to each other, the stocks of CSX (CSX) , up 50% and Norfolk Southern (NSC) , plus 13%.
CSX has gained 50% almost solely because of the appointment of Hunter Harrison. May I say, this move has become the stuff of legend, because it wasn't like the bears were circling Michael Ward, the long-time CEO. In fact, I don't know a soul who thought he was doing a mediocre job. The stock, once Harrison got in, clearly says Ward wasn't delivering to this railroad's full potential, to say the least.
Norfolk Southern's up on the hope that Harrison will launch a takeover bid for the rail line, a hope I think is fanciful but it's not like NSC's been poorly performing. The return of coal, for both export and a replacement for pricier natural gas, as well as a belief that President Trump can keep coal's hope alive, have also powered the advance.
Southwest Air (LUV) , with a stock that's up 21% because of superior execution, remains the other real stalwart.
There are only a handful of other double-digit winners, namely Kansas City Southern (KSU) up 13%, a rail that trades with Trump's NAFTA strategy right now, considered more benign than when the year began, and United Continental (UAL) , plus 11% -- perhaps ironic given the PR debacle from earlier this year.
The rest are jump ball. Most airlines are flat, give or take 3-4%. The truckers are terrible, with J.B. Hunt (JBHT) , the country's largest, off 12%. The positive FedEx (FDX) cancels the negative UPS (UPS) . The bedraggled and rather unknown freight forwarder and logistics companies like C.H. Robinson (CHRW) , off 8%, Ryder (R) , down 11%, are awful. And Avis (CAR) , worst of all, down 40%, is a candidate for kick out at this pace.
I find the group disturbing. You take out Norfolk Southern and Southwest and you have a group that verifies the bond market's advance, not the stock market's rally, and there are too many negatives, with a total of eight down for the year. A totally bedraggled group.
I would love to quibble with the index. We sub out the much larger XPO Logistics for Ryder and you get a more than 30% swing. You eliminate the need for a rental car company and you get rid of that down 40% component.
But history teaches us that you can't look through an index, and the only conclusion right now is the index offers no solace for the bulls.
