A ‘weird’ rally in some shipping stocks

Michael Webber, a senior analyst at Wells Fargo Securities, cautioned the surge in freight rates and shipping stock prices seen in recent days may be “transitory.”    Freight rates and shipping stock prices have risen sharply in recent days, with some ascribing the jump to the presidential election victory of Donald Trump.
   “Shipping Gets Weird: The Trump Rotation & Retail Momentum,” is the way that Michael Webber, a senior analyst at Wells Fargo Securities titled an equity research note published today.
   “Over the past five trading sessions, the dry bulk universe is up 378 percent,” he wrote, adding “that’s not a typo.”
   That spike was led by DryShips, whose stock was up 1,501 percent when he wrote his note. On Wednesday morning, the Nasdaq stock market halted trading in DryShips’ stock, asking for additional information.
   Webber wrote in his note that the stocks of other companies had also seen impressive gains, with Euroseas’ stocks up 267 percent and Scorpio Bulkers’ stocks up 51 percent.
   Meanwhile, Diana Containerships saw the price of its stock jump from $2.26 on election day to close at $6.14 on Tuesday, then explode to $26.17 this morning before dropping off.
   The Baltic Dry Index, which is based on a daily assessment by shipbrokers of the cost of moving a variety of dry bulk cargo on different routes with various-sized ships, has been on the rise, hitting a one-year high of 1,084 today, up 19 percent from 911 on election day. In the past year, the index has been as low as 290.
   Webber said he has been getting the question “Yo – What The‎ Heck Is Going On?”
   “It’s a good question, and one we’ve received quite a bit over the past few days, as the sheer magnitude and velocity of the pricing moves are massive, even by shipping standards,” he said.
   Webber said he thinks part of the reason for the move is a continuation of what he calls the “Trump rotation trade – into riskier, energy related assets. We believe the bulk of these moves are general and high level in nature.”
   He said retail investors are driving part of the increase, “which has become a self-perpetuating cycle in recent days.”
   “For us, the first word that comes to mind when we see this kind of performance in dry bulk/containerships: Transitory,” Webber cautioned. “We do not believe this lasts, and should reverse. That said, we think the move is too severe to try and short (at least for now).‎”