Is a recession around the corner? Some analysts believe the key to that answer resides with transportation companies like Federal Express (FDX), Union Pacific (UNP) and Ryder (R). Specifically, if less and less unfinished goods are being moved to manufacturers, wholesalers and retailers, then one might anticipate sluggish growth, or even economic contraction.
How might one determine the collective well-being of transporters? The iShares Transportation Average ETF (IYT) tracks the investment results of an index comprised of airline, railroad and trucking corporations. Perhaps surprisingly, the transportation sector appears to be struggling in spite of cheap oil.
Unlike exchange-traded trackers for the Dow Industrials ETF (DIA) or the S&P 500 SPDR Trust (SPY) – broader stock market proxies that have hit all-time highs in 2015 – IYT has not reached a new pinnacle since December 29. In fact, since the “Bullard Bounce” ran its course between mid-October and late November of last year, the transportation sector has run into heavy resistance.
The IYT:SPY price ratio is another way to look at the changes that are taking place. For example, a rising price ratio might be indicative of a generally favorable perception for the health of the domestic economy. Indeed, the momentum for IYT relative to the broader market’s SPY is evident for the better part of the last eighteen months; IYT:SPY effectively held above a critical trendline.
More recently, however, the favorable trend has been waning. The change in sentiment appears to have occurred around the beginning of November. Did something significant transpire at the tail end of October? Back on October 29, the Federal Reserve formally ended the third iteration of its controversial quantitative easing program (QE3). Ever since, economic forecasts as well as economic realities have been diminishing.