{"id":39352,"date":"2023-07-23T05:54:38","date_gmt":"2023-07-23T09:54:38","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/watch-the-dow-transports-for-clues-about-the-economy-not-the-stock-market\/"},"modified":"2023-07-23T05:54:40","modified_gmt":"2023-07-23T09:54:40","slug":"watch-the-dow-transports-for-clues-about-the-economy-not-the-stock-market","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=39352","title":{"rendered":"Watch the Dow Transports for clues about the economy \u2014 not the stock market"},"content":{"rendered":"
\n

The Dow Jones Transportation Average
\n DJT,
\n -0.20%<\/bg-quote>
\n has been on a tear in recent weeks, leading the market higher. That may or may not mean the U.S. bull market will continue.<\/p>\n

The Dow Transports recently closed above its early-February 2023 closing high. Its prior inability to do so had worried some stock-market professionals. Their worry has been replaced by exuberance. As recently as two months ago, the Dow Transports were significantly lagging the Dow Jones Industrial Average
\n DJIA,
\n +0.01%<\/bg-quote>
\n for trailing 12-month performance \u2014 by 6.9 percentage points. They now lead the Dow by even more for trailing-year performance\u2014by more than 9 percentage points. That means there has been a net swing in trailing 12-month performance of 16 percentage points in just two months\u2019 time.<\/p>\n

\n

The reason the bulls should not get too excited by this incredible swing in the Dow Transports\u2019 favor is the same as why, two months ago, the Transports\u2019 market-lagging performance was not particularly bearish. I reported then that \u201cneither Dow Average [is] a consistently good leading indicator. A big culprit is the lack of any consistency. In some decades, one or other of the Dow Averages was positively correlated with the S&P 500\u2019s
\n SPX,
\n +0.03%<\/bg-quote>
\n subsequent return, and in other decades one or both were inversely correlated.\u201d<\/p>\n

As a result, you can\u2019t draw any automatic conclusions from the mere existence of a discrepancy between the two Dow averages.<\/p>\n

Leading economic indicator vs. leading market indicator<\/strong><\/h2>\n

It\u2019s important to distinguish between a good leading indicator of the economy and a good leading indicator of the stock market. As I have reported before, the transportation sector does a decent job in the former case. For example, statisticians at the U.S. Department of Transportation have found that trend changes in their Freight Transportation Services Index occur several months in advance of when growth in the overall economy begins to accelerate or decelerate.<\/p>\n

But the stock market also is a good leading economic indicator, anticipating trend changes in the overall economy by several months. As a result, it\u2019s asking too much of the transportation sector that it be a good leading indicator of the stock market. For that to be the case, it would have to be a leading indicator of a leading indicator.<\/p>\n

Take a look at the accompanying chart, which plots the Dow Transports along with the Freight Transportation Services Index. As you\u2019d expect from two leading economic indicators, they themselves are very closely correlated.<\/p>\n

<\/p>\n
<\/p>\n
<\/div>\n<\/figure><\/div>\n

The bottom line? It\u2019s good economic news that the transportation sector is exhibiting such strength. But that doesn\u2019t necessarily mean the bull market will continue.<\/p>\n

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at <\/em>mark@hulbertratings.com<\/em><\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The Dow Jones Transportation Average DJT, -0.20% has been on a tear in recent weeks, leading the market higher. That may or may not mean the U.S. bull market will continue. The Dow Transports recently closed above its early-February 2023 closing high. Its prior inability to do so had worried some stock-market professionals. Their worry […]<\/p>\n","protected":false},"author":1,"featured_media":39353,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-39352","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nWatch the Dow Transports for clues about the economy \u2014 not the stock market | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The Dow Jones Transportation Average DJT, -0.20% has been on a tear in recent weeks, leading the market higher. 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