|Dow||+121.45 to 18,162.99|
|S&P 500||+19.28 to 2,123.48|
|Nasdaq||+73.84 to 5,106.59|
|10-YR Yield||-0.02 to 2.135%|
|Gold||+$0.20 to $1,187.10|
|Crude Oil||-$0.40 to $57.63|
What’s eating the transport stocks? Seriously … these guys can’t seem to get out of their own way!
Take a look at this one-year chart and you can see that the Dow Jones Transportation Average failed to set a new high recently, even as the Dow Industrials and Nasdaq Composite did. You can also see on the far right that we just suffered a high-volume breakdown – and importantly, it was from a range that had held since November!
What makes this even more interesting … and counter-intuitive? Transports are suffering even as energy prices remain subdued!
You know I’m bullish on crude oil and natural gas stocks, what with domestic production topping out, drilling activity plunging, and corporate M&A on the upswing. But we’ve still only seen crude rise from $41 to around $59 a barrel, while natural gas is hovering near $3 per million British Thermal Units (BTUs).
Those prices are well below the highs of the past couple of years. So in theory, that should be good for large fuel users like airlines and truckers. But shares of those companies can’t seem to get out of their own way lately. Same for shares of the railroad companies.
So what’s behind the weakness?
1) Airline competition fears – We’ve seen a lot of recent mergers in the airline space, mergers that have given the large U.S. carriers virtual monopolies or duopolies on several important routes. They’ve also maintained capacity discipline, not adding too many new planes to their fleets or flights to their route maps.
But low-fare airlines like Southwest (LUV) and Spirit Airlines (SAVE) are getting more aggressive with expansion plans now. That’s going to force the big boys like Delta (DAL) and the combined American Airlines (AAL)/US Airways behemoth to match pricing.
2) Railroad woes – You know how I told you the other day about the long-term decline in coal usage? How natural gas is increasingly replacing coal as the power plant fuel of choice? That may be good for the environment, and for investors in nat gas stocks. But it means less coal travelling by rail.
The decline in domestic energy drilling is also hurting demand for shipments of fracking sand. So we’ve seen earnings warnings and price declines for railroad operators like Kansas City Southern (KSU) and CSX (CSX).
3) Economy concerns – I’ve been banging the drum lately about things being “less good here” and “less bad there” in foreign economies. We’re continuing to get some spongy data here in the U.S., and that’s hurting sentiment for economically sensitive transport stocks.
|“It’s definitely a yellow flag worth watching.”|
I don’t think this is a clarion call from the markets to sell everything. But it’s definitely a yellow flag worth watching, and it may be an indicator to take some profits off the table.
(Editor’s note: You can read more about what Mike plans to do in response to this situation in his Safe Money Report letter. If you’re not a subscriber, you can get information by clicking here or calling customer service at 800-291-8545).
Let me know what you think about the lousy action in transports lately. Is it a warning sign for stocks? Or just another hiccup on the road to higher stock prices? Do you think other sectors can pick up the slack from transports and if so, which ones? Here’s the Money and Markets website link where you can post your comments.
|Our Readers Speak|
The latest cable combinations and a potential confrontation with China were two big topics over at the website in the past 24 hours.
Reader Jasneskis weighed in on cable service, saying: “I cut my cable years ago and have been using Air TV and streaming since. I don’t use Netflix or Apple. No pay services are needed. WiFi is the big demand. Wish it could be supplied reasonably. That company would be worth an investment.”
Reader Juls added: “Lousy service doesn’t even come close to describing how these leviathans treat their paying customers. I cut the cable years ago and went to Air TV and streaming, but with competition becoming even more scarce among ISPs, the speeds offered are at best pathetic and rarely what you pay for.”
Meanwhile, on the geopolitical front, Reader Leo T. said: “The U.S. is using a wrong strategy to deal with South China Sea issues. The reasons why all South China Sea surrounding countries are claiming a stake in those islands are 1) The large oil and gas reserves, and 2) Security of ship transportation, especially resource ships to China.
“Instead of using a confrontational strategy, the U.S. and China should work with surrounding countries to share the fruits of energy development and to develop a non-military zone in the South China Sea to ensure the security of ship transportation.”
Meanwhile, Reader Jim offered the following take on the regional tensions: “It does indeed appear that the federal empire has decided to disengage from the Middle East and pivot East to the Pacific, mainly the South China Sea. They are spoiling for a fight with the Chinese, a good old fashioned Navy War. One look at the Huntington Ingalls Industries (HII) chart confirms this.”
Thanks for the comments. Standard cable service is definitely starting to go the way of landline home phone service, which I eliminated a long time ago. But reliable, speedy, affordable broadband service is the real holy grail for me – and it would be great if something better than either DSL or cable Internet were out there to choose from.
As for the U.S.-China tensions, they’re definitely going to be a growing issue over the coming few years. China is flexing its military muscles more aggressively, while we’re increasingly trying to contain those impulses. Hard to see how those two aims can be reconciled without conflict of some sort or another.
Want to weigh in, but haven’t yet? Don’t wait! Head over to the website and add your comments.
|Other Developments of the Day|
A widespread corruption scandal has enveloped the international soccer organization FIFA. Swiss police raided a FIFA meeting in Zurich as part of an international investigation, one in which the U.S. Justice Department just filed a 47-count corruption indictment. Authorities allege that 14 FIFA executives and other officials enriched themselves by rigging marketing and tournament hosting deals over the span of more than two decades.
No debt deal for Greece … or at least, not by the end of May target that heads of state were shooting for. Bloomberg reports that Greece is still confident in signing an accord with its European creditors by June 5. But with each new deadline passing without a new agreement, skepticism rises. Greece owes the International Monetary Fund (IMF) 1.6 billion euros in June payments.
The fickle finger of fashion tapped two different retailers on the shoulder, one with bad news and one with good. Shares of the premium handbag and wallet seller Michael Kors (KORS) tanked after sales growth slowed to less than 18% in the most recent quarter. That was the lowest growth rate in 13 quarters. On the other hand, shares of Tiffany (TIF) popped after the jewelry retailer reported better-than-expected earnings despite the headwind of a stronger dollar.
The death toll from Houston’s nasty weather rose to five today. Hundreds of cars had to be abandoned when more than ten inches of rain flooded roadways. Public schools were also shut down. Eleven people are still missing in another central Texas town where a wall of water flooded down the Blanco River, sweeping houses away.
Any thoughts on the awful spring weather we’re seeing in some locations? The latest retail earnings? Or anything else I did (or did not) cover here? Then use the website to share them with me and your fellow investors.
Until next time,