| MARKET ROUNDUP | |
| Dow | +121.45 to 18,162.99 |
| S&P 500 | +19.28 to 2,123.48 |
| Nasdaq | +73.84 to 5,106.59 |
| 10-YR Yield | -0.02 to 2.135% |
| Gold | +$0.20 to $1,187.10 |
| Crude Oil | -$0.40 to $57.63 |
What’s eating the transport stocks? Seriously … these guys can’t seem to get out of their own way!
Take a look at this one-year chart and you can see that the Dow Jones Transportation Average failed to set a new high recently, even as the Dow Industrials and Nasdaq Composite did. You can also see on the far right that we just suffered a high-volume breakdown – and importantly, it was from a range that had held since November!
What makes this even more interesting … and counter-intuitive? Transports are suffering even as energy prices remain subdued!
You know I’m bullish on crude oil and natural gas stocks, what with domestic production topping out, drilling activity plunging, and corporate M&A on the upswing. But we’ve still only seen crude rise from $41 to around $59 a barrel, while natural gas is hovering near $3 per million British Thermal Units (BTUs).
Those prices are well below the highs of the past couple of years. So in theory, that should be good for large fuel users like airlines and truckers. But shares of those companies can’t seem to get out of their own way lately. Same for shares of the railroad companies.
So what’s behind the weakness?
1) Airline competition fears – We’ve seen a lot of recent mergers in the airline space, mergers that have given the large U.S. carriers virtual monopolies or duopolies on several important routes. They’ve also maintained capacity discipline, not adding too many new planes to their fleets or flights to their route maps.
But low-fare airlines like Southwest (LUV) and Spirit Airlines (SAVE) are getting more aggressive with expansion plans now. That’s going to force the big boys like Delta (DAL) and the combined American Airlines (AAL)/US Airways behemoth to match pricing.
2) Railroad woes – You know how I told you the other day about the long-term decline in coal usage? How natural gas is increasingly replacing coal as the power plant fuel of choice? That may be good for the environment, and for investors in nat gas stocks. But it means less coal travelling by rail.
The decline in domestic energy drilling is also hurting demand for shipments of fracking sand. So we’ve seen earnings warnings and price declines for railroad operators like Kansas City Southern (KSU) and CSX (CSX).
3) Economy concerns – I’ve been banging the drum lately about things being “less good here” and “less bad there” in foreign economies. We’re continuing to get some spongy data here in the U.S., and that’s hurting sentiment for economically sensitive transport stocks.
| “It’s definitely a yellow flag worth watching.” |
 I don’t think this is a clarion call from the markets to sell everything. But it’s definitely a yellow flag worth watching, and it may be an indicator to take some profits off the table.
(Editor’s note: You can read more about what Mike plans to do in response to this situation in his Safe Money Report letter. If you’re not a subscriber, you can get information by clicking here or calling customer service at 800-291-8545).
Let me know what you think about the lousy action in transports lately. Is it a warning sign for stocks? Or just another hiccup on the road to higher stock prices? Do you think other sectors can pick up the slack from transports and if so, which ones? Here’s the Money and Markets website link where you can post your comments.
| Our Readers Speak |
The latest cable combinations and a potential confrontation with China were two big topics over at the website in the past 24 hours.
Reader Jasneskis weighed in on cable service, saying: “I cut my cable years ago and have been using Air TV and streaming since. I don’t use Netflix or Apple. No pay services are needed. WiFi is the big demand. Wish it could be supplied reasonably. That company would be worth an investment.”
Reader Juls added: “Lousy service doesn’t even come close to describing how these leviathans treat their paying customers. I cut the cable years ago and went to Air TV and streaming, but with competition becoming even more scarce among ISPs, the speeds offered are at best pathetic and rarely what you pay for.”
Meanwhile, on the geopolitical front, Reader Leo T. said: “The U.S. is using a wrong strategy to deal with South China Sea issues. The reasons why all South China Sea surrounding countries are claiming a stake in those islands are 1) The large oil and gas reserves, and 2) Security of ship transportation, especially resource ships to China.
“Instead of using a confrontational strategy, the U.S. and China should work with surrounding countries to share the fruits of energy development and to develop a non-military zone in the South China Sea to ensure the security of ship transportation.”
Meanwhile, Reader Jim offered the following take on the regional tensions: “It does indeed appear that the federal empire has decided to disengage from the Middle East and pivot East to the Pacific, mainly the South China Sea. They are spoiling for a fight with the Chinese, a good old fashioned Navy War. One look at the Huntington Ingalls Industries (HII) chart confirms this.”
Thanks for the comments. Standard cable service is definitely starting to go the way of landline home phone service, which I eliminated a long time ago. But reliable, speedy, affordable broadband service is the real holy grail for me – and it would be great if something better than either DSL or cable Internet were out there to choose from.
As for the U.S.-China tensions, they’re definitely going to be a growing issue over the coming few years. China is flexing its military muscles more aggressively, while we’re increasingly trying to contain those impulses. Hard to see how those two aims can be reconciled without conflict of some sort or another.
Want to weigh in, but haven’t yet? Don’t wait! Head over to the website and add your comments.
| Other Developments of the Day |
A widespread corruption scandal has enveloped the international soccer organization FIFA. Swiss police raided a FIFA meeting in Zurich as part of an international investigation, one in which the U.S. Justice Department just filed a 47-count corruption indictment. Authorities allege that 14 FIFA executives and other officials enriched themselves by rigging marketing and tournament hosting deals over the span of more than two decades.
Any thoughts on the awful spring weather we’re seeing in some locations? The latest retail earnings? Or anything else I did (or did not) cover here? Then use the website to share them with me and your fellow investors.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 21 comments }
I have contended here before that the Federal Reserve is NOT acting to “simulate” the economy at all, but rather to suppress it! How? By pushing interest paid on savings down to next to nothing. By doing this, “financial repression” as it is called, it is depriving most people of the income they would otherwise receive on their wealth. How could this condition allow and encourage those same people to spend and consume? Obviously, it does not! The sooner the Fed takes it’s foot off our necks, the sooner people will start to spend again!
So FIFA has been making “soccers” out of us while playing us for the fool for years. I wonder if they have been taking any pages out of NFL’s playbook?
So far Money and Markets has us preparing for “Bloody Wednesday” on June 17 and now Larry’s “Black October”. Just wondering if both could actually take place.
Really enjoy each issue of M & M. They are packed with good information and food for thought.
Thanks,
Jerry
And don’t forget the warnings of September 13th & 15th – lights out – and may just be what causes Larry’s Black October.
Time to live TO enjoy life every moment – just in case.
Meanwhile I’m not buying anything.
I heard a rumor that on May 31st we will be setting our calendars back to March 1st. We must have skipped a couple months somewhere. Actually I have on good authority it is all Jupiters fault. The Sun like the planets orbits the center of the universe, it doesn’t sit dead on the center. When Jupiter passes close to the sun it can pull the Sun’s orbit off and in this case a bit further from the earth. Add that to the fact that the pacific currents are a bit warmer this year (has nothing to do with “Global Warming”) we have El Nino on the West Coast. Watch food prices globally as it affects growing weather in the entire Pacific Basin, north and south.
I would really like to know why the market was down yesterday tuesday and why the market is up today. I see no change in the fundamentals, oil, gold the dollar, no major announcements If anybody really, really knows why and can reasonably convince me (us), would appreciate it. Please do not repeat major headlines from periodicals or regurgitate other peoples comments. I am interested in convincing facts… thanks
surely you jest. black gold, man.
surely you jest. black gold, man.
Humm. That’s much closer and you’re right about Jupiter but in September a number of planets will align differently. I’ve heard whatever our problems are now is nothing to what comes…..and I’m NOT talking Harry Dent here – real science.
Does the Dow Theory come into play here? It has been 6 mos since DT hit it’s high and the same for DU, but the DJIA just keeps humming along. Does the Dow Theory not apply any more?
U ever here the old saying the bigger than r the harder than fall. Well that’s the sToca market the higher it goes the lower it’s going to fall.
Corruption
FIFA is now joining the big banks in the field of corruption. Who is up to bat next? Makes one wonder who is corrupting what and going undetected by authorities. I am sure they are only catching the tip of the iceberg say 1 or 2 % As one banker said ” If your not cheating your not trying” Really gives one confidence in the institutions that hand our money.
Mike, What’s your view on Larry Edelson’s doomsday scenario please?
what’s your view ? mike has no other view except black gold.
Hi everyone have a wonderful day to all.
Folks, the best amateur [unbiased!] climatologists warn that next 5yrs will be terribly extreme! My personal opine is that we have abused the environment so badly that it can only get worse in response to our misuse. If we dont stop the chemical corporates from running amok, we will have to pay the price for our neglect in health and famine.
PS: just the loss of bees to pollinate is costing millions of USD.
QUESTION FOR MIKE LARSON,
you pounded the pavement in your Safe Money report to buy into Noble NBL Energy. Then you pounded the table to double down. As you suggested with huge upside potential, why are we down almost 20% in the last 6 weeks when energy as a hole has been up? – You raved about the company and that it was a great deal to grab. Where is this going and how far do we let this thing run before we take our lumps, and move on?
Steve Scott?
you are asking mike. are you joking?
In reality, energy companies are maintaining unequal ratios of crude prices vs. final use cost to the consumer. For instance to trucking companies, crude at $100 was equal to about diesel at $3.50. When crude was half that at $50, diesel never saw $1.75. In fact, there was only about a 25% drop in diesel vs. a 50% drop in crude.
Dow Theory anyone? Has everyone forgotten this? Looks to me like the DT and DU are trying to tell us something. What about the Baltic Dry Index? Don’t know exactly when but something has got to happen in the near future. This can’t continue much longer.