Does anyone remember the “Pushmi-pullyu, the wonderful creature in the Dr. Dolittle books? The market these days reminds me of that poor creature, trying to go this way and that at the same time …
Sometimes I, and others, give a sense in our writing that the market is a simple-minded entity. The reality is the market is complex, and both the great and small influence it to move one way or the other. As well, the market these days, like the world around us, is changing. More information is flowing faster and with more depth. Market players have many more ways to view the factors that influence the market, thus the question below is quite interesting.
- If the transports have always been one of the most reliable indicators of the market for umpteen years- how screwed are we with 8 of the last 10 larger transport companies warning of further tail-off in earnings? Isn’t that a really ugly circumstance – especially when they project further retraction in earnings for several years ahead.
The reader is correct to see the above as a warning sign, and I certainly do look to the transports for guidance on market direction, as the actual shipment of raw goods and finished product is a telling sign about current economic conditions. Keep in mind, though, forward guidance is just a guess on their part. When they guess years ahead, I pay little attention, as the global economy can change relatively quickly. As to their actual earnings, the global economic situation is a big reason transport earnings are down. Both Europe and China are slowing. The question is: will either or both rebound in the next year? My guess is we will see China turn up before Europe, but I would not be surprised if Europe shows some economic spark in the next year.
As for me, the current state of the earnings in that sector is noteworthy, but I mix that in with the fact that the US economy is still growing, albeit slowly. If consumer sentiment in the US continues to perk up, and if the US consumer continues to buy durable goods (autos and houses), as well as picking up spending in the non-durable goods area, and if China starts its turn around this quarter or in the first quarter of next year, expect the forward guidance of the transports to change.
As to how the market views the earnings and forward guidance from the transports, take a look a one-month chart of the DOW Transportation index. As the transport companies reduced forward guidance, the index dipped. Over the last ten days, the index has been volatile, up and down. Today, it is up. This tells me the market is not convinced the current earnings and forward guidance are the final word in the debate about the global economic picture. Perhaps the data below contributes to this thinking.
- Toyota Motor Corp’s September U.S. auto sales were the highest since March 2008. Toyota showed a gain of 41.5 percent in September auto sales from the previous year.
- Oil dropped for a second day in New York after an industry report showed U.S. crude stockpiles climbed a fourth week, signaling demand may be faltering in the world’s biggest user of the commodity.
As I said, the market is not a simple-minded entity. We should always keep this in mind.
Trade in the day; Invest in your life …
