Why transportation is so important

 

Many times the activity begin in the Rail Average before the Industrial Average. Before the economic activity began, raw materials will have to be moved from the suppliers to manufacturers. Before the automotive companies could increase production, more steel need to be transported. An increase in activity among the rail stocks would foreshadow an increase in business activity for the industrial stocks. You can also foreshadow an economic downturn.

tran 27 june

(Chart: Dow Jones Transportation Average)

The internet has changed the economy and is more different from hundred years ago, and the makeup of the DJTA has changed to favor the airlines. There is still credibility in using DJTA to confirm movements in the DJIA. Transport stocks are much more dependent on the economic environment than the average stock and will likely foreshadow economic growth.

 

Energy and labor cost from a large portion of expenses, The airline business is cyclical and revenues are highly susceptible to economic changes. Airline companies typically carry above average levels of debt and will be more vulnerable to changes in interest rates.

 

To reflect the added risks above airline stocks have traditionally sold significantly below market multiples. If the PE for the S&P 500 is 28, the average airline might sell for only 8-10 times earnings.

 

Airline companies bear the burden of all interest rates, energy costs and labor costs, but are still likely to act as a leading indicator of the general economic environment. Airlines biggest fear should however be that people will stop flying in airplanes.

 

That`s why I`m following airplane and shipping stocks all the time. It gives me a sign of a new activity in the economy or a real slowdown in the economy. As you can see on the chart above, the activity is great, which is good for the transportation stocks.

 

 

Reports today:

09:45 a.m EST Chicago PMI

10:00 a.m EST Pending Home Sales m/m

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

 

Advertisements

Leave a comment

Filed under Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s