The Dow Jones Transportation Average has long been considered a good forward indicator of the direction of the U.S. economy. With early signs that an economic slowdown is coming, this might be an obvious portion of the stock market to avoid.
Then again, this group of 20 stocks includes four that are both expected to be profitable this year and grow earnings at a double-digit pace through 2024. It also includes some bargain stocks, especially if you believe the dark days of the pandemic are behind us.
The transportation warning
First, here’s a chart showing total returns (with dividend reinvested) for the Dow Jones Transportation Average
DJT,
the Dow Jones Industrial Average
DJIA
and the S&P 500
SPX
this year through April 14:
FactSet
The Dow Transports have been bringing up the rear. Following a 5% drop for the Dow Transports on April 1, a day when the Dow Jones Industrial Average and the S&P 500 were up, Mark Hulbert called the action a “bad omen.” He cited government data correlating poor performance among transportation stocks with economic slowdowns over succeeding months.
Along with this year’s weak showing for the Dow Transports, consumer and wholesale price increases were at 40-year highs in March, and the Federal Reserve is expected to accelerate its interest-rate increases and begin reducing its bond holdings soon to counter inflation. Rising rates have given home builders the jitters, and it remains to be seen if the Fed’s moves will cause a recession or lead to a “soft landing” for the economy.
The case for (some of the) Dow Transports
To screen the Dow Jones…
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