From WSJ's morning report:
Transport Sector Flashes a Warning Signal
By Paul Vigna, markets reporter
FedEx has offered the latest signal that a turning point is coming in the business cycle.
The delivery company cut its 2020 outlook after the closing bell Tuesday, pointing to trade tensions and a weak global economy. Chief Executive Frederick Smith said on the company’s conference call that it is taking steps to reduce its capacity, partly because the absence of a trade deal with China has reduced the movement of goods internationally.
Investors often look at the transport sector as a bellwether of the economy. Believers in the so-called Dow Theory say weakness in shares of companies that transport raw goods and materials can point to turmoil for the broader market.
FedEx shares tumbled 13% to $150.91—their largest one-day percentage decline since December 2008.
Sectors like transportation and manufacturing have been sending out signals for months that a turn in the business cycle is near, leaving investors to question the longevity of the decade-long bull market in U.S. stocks.
The problem is there isn’t any easy demarcation between a growing and contracting economy, no solstice or equinox that marks the turn of the seasons. Divining when the economy has slipped into a recession—or, at least, doing it ahead of other investors—requires sifting and analyzing myriad tea leaves and smoke signals.
Although the broader market is still flirting with all-time highs, the transport sector has struggled to recover lost ground—a potentially ominous sign for investors who believe transports need to rebound for the market to break higher.
The U.S. manufacturing sector, some argue, has already fallen into recession. On Monday, the New York Fed’s manufacturing index fell to just 2, below its level from the beginning of the last recession, which began in 2007.
The Dow Transportation Average—which tracks 20 of the nation’s largest airlines, railroads and truckers, including FedEx—is still down 8.2% over the past year, though it has gained 15% this year. FedEx itself is down 38% over the past 12 months.
Another signal from the transport sector: An index of freight shipments maintained by the research firm Cass Information Systems has been falling every month this year.
After the drop in the August index, down 3% from a year ago, the firm said “the shipments index has gone from warning of a potential slowdown to signaling an economic contraction.”
