One of the main concerns I have had with the current rally is the lack of confirmation from the Transportation average. This has been a huge sticking point with me because I still think Dow theory is incredibly relevant. Remember that Dow theory states the transportation average must confirm upward movements in the Dow and S&P 500. The underlying reason is pretty intuitive. If the broader averages are growing because the economy is expanding, then people will have to ship more and more stuff across the country.
As the chart above shows, the Transports are still in a trading range while the rest of the market has rallied. If business is so good, why aren't business and people shipping more stuff?
However, recent news items from the trucking industry has not been encouraging.
Slumping demand and higher fuel costs continued to weigh on truckload carriers throughout the third quarter, and analysts suggest that earnings may fall below expectations as a result.
Truckload carriers typically dedicate an entire trailer to one customer and move the freight directly from the shipper to the receiver.
Morgan Keegan & Co. analyst Art W. Hatfield said the market is continuing to slow at a time when demand usually ramps up toward a pre-holiday peak.
"Generally speaking, the demand environment has been marked by inconsistency week to week and has yet to show signs of any building momentum," he said.
In fact, Hatfield said current conditions may be as severe as those seen in 2001, when the market was hit by the effects of an economic recession.
Another factor that hurt the sector in the third quarter is the price of fuel, with a gallon of diesel climbing 7.7 percent over the quarter to as high as $3.05, from $2.83 per gallon last year.
And that's not all:
Forward Air Corp., a contractor to the air cargo industry, on Wednesday issued third-quarter profit guidance below Wall Street estimates, citing a slumping economy.
The news sent Forward Air shares down $2.32, or 7.9 percent, to $27 in aftermarket trading. Earlier, they fell 27 cents to $29.32 in the regular session.
Forward Air said it expects to post a profit of 35 cents to 37 cents per share for the quarter, while analysts polled by Thomson Financial expect a profit of 42 cents per share.
And there's more:
Trucking and logistics company Werner Enterprises Inc. on Monday said its third-quarter profit fell 11 percent, but still beat Wall Street estimates.
Net income for the three months ended Sept. 30 fell to $21.9 million, or 30 cents per share, from $24.6 million, or 31 cents per share, during the same period a year earlier.
And yet more:
J.B. Hunt Transport Services Inc., which provides truckload and intermodal shipping services, said Thursday its third quarter profit fell 12 percent because of higher interest expenses and lower revenue in its trucking division.
For the quarter ended Sept. 30, net income fell to $50.8 million, or 38 cents per share, from $57.8 million, or 39 cents per share, in the prior year quarter. The company had about 133.7 million shares outstanding at the end of the quarter compared with 148.7 million at the end of the same quarter last year.