What trucking stocks tell us about the recent market decline

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On Monday, the stock market took a tumble, falling 4.6% to finish the day at 24,345.75. That followed a 2.5% drop on Friday and a decline of over 1,100 points last week.  There are many stock analysts that have been predicting this. The question now becomes, are we looking at a correction or something more indicative of a slowing economy?

Donald Broughton, founder of Broughton Capital and chief market strategist for TransRisk, says there isn’t a need to worry as this is likely just a market correction.

“We should always put big point moves in perspective,” he tells FreightWaves. “Just 6 trading days after the Dow Jones Industrial Average hit another all-time high (26,616) that was up 32.7% on a YOY basis, we had a record point drop today. From a percentage perspective, the 4.6% down day, although significant, was nowhere near a record percentage drop (down 22.6% October 19, 1987 and down 12.8% October 28, 1929).”

Broughton says that while the public and press get caught up in the big numbers that occur with drops, the professional traders focus on longer-term percentage changes and individual stocks.

“In the last 3 months, the Dow Jones Industrial Average was up 14.4% before the correction started, and is still up 21.4% over the last 12 months even after the market’s correction,” he explains. “Knowing that moves of over 20% in any year are rare, most professional money managers have been actively rotating the stocks they are invested in and the weighting of the sectors to which they are exposed (i.e., taking profits and trimming risk).”

Broughton goes on to note that, when viewing the transportation stocks, the fundamentals of the economy remain strong.

“The transportation stocks are often seen as a early indication of the overall economy and equity markets because the goods that they move are an early indication of the health of the overall economy and the health of the companies whose stocks are traded in the equity markets,” he says. “The economy can’t grow if freight flows are shrinking and continue to shrink, and the economy can’t contract if freight flows are growing and continue to grow. Right now all the freight flows, except coal, are growing and continuing to grow. This tells us that the current market volatility is probably a much-needed correction and not the beginning of the next great bear market.”

One interesting item that Broughton raises is the value of the U.S. dollar.

“Often, we see the U.S. equity market go up (or down) by a percentage that is similar to the percentage move down (or up) in the value of our currency,” he explains. “In these instances, we will point out that the value of U.S. stocks didn’t change at all for foreign investors. For example, if the equity market goes up by 2% but the value of the U.S. Dollar goes down by 2% against the Euro, from a European investor’s point of view, our market has gone nowhere. In the most recent correction, the value of our stocks has fallen while the value of our currency has fallen as well (down 3.4% in just the last month).”

The bottom line is that freight flows continue to suggest strengthening, Broughton notes.

“If freight flows continue to grow as robustly as they currently are, the U.S. dollar will stop falling in value and begin to be seen by global investors as an undervalued currency to invest in,” he says. “As global and domestic investors see the realized result of all those growing freight flows, they will increase their exposure to the U.S. equities and other U.S. dollar based investments. Simply put, if freight flows continue to robustly grow, the current market correction will quickly look like a buying opportunity in the rear-view mirror.”

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Brian Straight

Brian Straight covers general transportation news and leads the editorial team as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler.