Today's pickup: no frenzied market reaction to a bearish Wall Street report on transport sector

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Good day,

It’s always fascinating to see what makes markets move. On Monday, Morgan Stanley’s transportation team put out a bearish report on the trucking and transport sector. While it changed its ratings on only a few stocks, it lowered the overall expectations of earnings per share by about 2%. At the heart of the Morgan Stanley changes was its view that the market very well may have peaked a few months ago, possibly on the back of a rush to beat tariffs, that there is little sign of the end-of-year peak season starting anytime soon, and capacity seems to be easing as well. The stock market reaction was a big shrug. While some of the stocks downgraded underperformed the broader market, other big names were up. Norfolk Southern (NYSE: NSC), Marten (NASDAQ: MRTN), Knight-Swift (NYSE: KNX)…all of them higher (none were on the downgrade list). Compare that to the reaction a few months ago when a strong report from Werner (NASDAQ: WERN) led to the market believing that the peak had been reached—even though there were few signs of that in the Werner second quarter report--and a selloff occurred. Morgan Stanley’s main argument is that a lot of trucking stocks are overvalued relative to what looks like a somewhat softer market, hence the correction. For Monday at least, investors didn’t seem to think so.

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Did you know?

The Port of Tampa says it is Florida’s largest port, fueled in part by cruise activity. It had a bangup year in the fiscal year that ended September 30. Its operating revenue was $59.7 million, up from the record $53.8 million of a year earlier. Part of the growth came from an expanded Port Logistics Cold Storage facility and increases in commodity imports like petroleum, limestone, citrus and sulfur. The revenue is up $16 million from 2012.


“While we dismissed much of the normalization in July and August as normal seasonality and tough comps, the slide has continued in September and October and the (Morgan Stanley Truckload Freight Index) is now down to 10-year average levels. More concerning is the fact that peak season demand has not shown up yet despite high expectations and most industry observers do not appear to have a real explanation for why — similar to 2015.”

 --The Morgan Stanley transportation team, discussing some of its reasoning for a downgrade of several transport sector stocks and a switch in its outlook for the sector to “cautious.”

In other news:

IMO meets in London as 2020 gets closer

There is some talk of delaying stricter sulfur fuels for marine vessels set to go into effect in two years. (WSJ)

Post-Brexit, ports will be the problem

An  official says the UK Customs bureau is ready but the ports won’t be. (The Loadstar)

The potential impact of a Colorado referendum on oil & gas production

It would be dire but maybe not as dire as some had predicted. (Platts)

For India to reach its air freight target, it needs big annual growth

The projections are almost 13% per year (MoneyControl)

C.R. England and its one big cause

The trucking company focuses on hunger in children (Deseret News)

Final Thoughts

It is a reasonable guess that The New York Times was first alerted to possible problems at an XPO warehouse—with reports of miscarriages and at least one death—by the Teamsters union. The Teamsters has been targeting XPO as a potential for organizing for several years, with some victories and some defeats. The sheer size of growing XPO and the fact that it has so many facilities makes it easy to understand why it would be a union target. The story regarding the Memphis warehouse is just one part of this ongoing battle.

Hammer down everyone!