Market drop hits transport stocks, but long-term outlook remains strong

Following a 2.5% drop on Friday that concluded a week that saw the Dow Jones Industrial Average fall more than 1,100 for the week, the Dow continued to trend downward on Monday, falling nearly 1,600 points at one point in the afternoon before finishing the day down 1,175.14 at 24,345.75, off 4.6%.

Transport stocks were not immune, dropping 336.77 to 10,350.41, a 3.15% fall on the day. Nearly all of the 30 stocks that comprise the Dow Jones Transport Index dropped on Monday.

CSX’s stock suffered the largest drop of the day, falling 5.79%, but it wasn’t the only one. Union Pacific (4.02%) and Norfolk Southern (4.43%) also fell more than 4% as the rail stocks were hit a little harder than the trucking stocks. UPS (2.71%), J.B. Hunt (3%), Ryder System (3.97%), Landstar (3.66%), FedEx (2.87%), and C.H. Robinson (1.47%) posted declines.

Other transport stocks also fell, with YRC Worldwide suffering a 11.47% drop to $10.925 a share and Schneider National dropping 6.95% to $27.06. Knight-Swift Transportation Holdings was down 1.45% rto $47.42 and XPO Logistics was off 4.35% to $89.74.

The overall decline of the market is being tied to investor worries over higher inflation and interest rates. The Standard & Poor’s 500 Index fell 2.7% and the Nasdaq composite was down 2.5%.

Long term, though, transport stocks should continue their strong growth. Public companies have reported strong earnings buoyed by capacity constraints and rising rates.

Morgan Stanley’s latest freight transportation report measuring sentiment continues to report expected growth.

“Sentiment continues to be elevated after a strong start to 2018 with all current measures (demand, supply and rates) increasing sequentially (counter-directional) and outperforming seasonality, and with forward demand, supply and current rate sentiment reaching their all-time highs,” the report noted. “However, while forward measures all increased sequentially they underperformed seasonality (likely a function of a very high bar). Respondents’ expectations for 2018 TL rates (ex. fuel) increased to [about] 5.2% y/y on average versus last update of 4.87% (Exhibit13), and of the respondents who selected +4% y/y, the average anticipated rate increased was about 8.3%, accelerating from our prior survey of about 7.94%.”

Following a generally strong 2017 for public companies, the start of 2018 continues to look good. “About 79% of respondents characterized forward demand as ‘Strong’, the highest level in the history of our survey,” Morgan Stanley wrote.

The downturn in stock prices is dramatic, but from a transport sector, Ravi Shanker, an analyst with Morgan Stanley, tells FreightWaves there shouldn’t be much concern.

“Trucking stocks have been very strong in the last 6 months so are understandably giving back some performance as the market reverses. Fundamentals remain strong but the market is obviously reacting to something in the macro so we’ll see what happens.”

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