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Transports On the Move

The Dow Jones Transportation Average strongly outperformed the other major indices on Friday, rising 4 percent on broad strength from truckers YRC Worldwide (YRCW) and Ryder (R), railroads CSX (CSX) and Norfolk Southern (NSC), and airlines AMR (AMR) and Continental Airlines (CAL).

Trucks on roadway.
AP
Trucks on roadway.

Like other cyclical stocks, transports have rallied strongly over the past month on hopes their businesses would be early beneficiaries of a rebounding economy. Since the summer rally began on July 11, the Dow Transports is up 21%, outpacing the 15% gains in the Dow Industrials and S&P 500 as well as the 14% gain in the Nasdaq Composite.

This comes despite somewhat cautious commentary from some transportation companies recently on continued volume declines and pricing pressures during the second half of the year. Recall, last month, CSX warned that Q3 freight volumes would fall double-digits – although not as great as the 21% decline it saw last quarter. Separately in July, Ryder cautioned that "continued market softness" would continue to weigh on its truck rental demand.

With Friday's gains, the Dow Transports has now surged 75% from its 6-year low set back on March 9, when it closed at 2,146.89. That performance is very impressive in comparison to the returns of the other major indices. During the same period: Dow Industrials up 43%, S&P 500 up 49%, Nasdaq up 58%, and Russell 2000 up 67%.

Take a look at how the 20 components of the Dow Transports have performed since March 9:

Con-Way (CNW) +258%

AMR (AMR) +117%

CSX (CSX) +112%

Ryder (R) +101%

GATX (GMT) +101%

FedEx (FDX) +98%

Continental Airlines (CAL) +92%

Union Pacific (UNP) +83%

Alexander & Baldwin (ALEX) +78%

Southwest Airlines (LUV) +76%

Norfolk Southern (NSC) +72%

JetBlue Airways (JBLU) +72%

Overseas Shipholding (OSG) +70%

Burlington Northern (BNI) +64%

JB Hunt (JBHT) +62%

CH Robinson Worldwide (CHRW) +44%

United Parcel Service (UPS) +41%

Expeditors International (EXPD) +37%

Landstar (LSTR) +36%

YRC Worldwide (YRCW) +27%

However, remember that transports were one of the worst-performing sectors during the downturn, as their freight volumes and pricing were hit extremely hard by the economic slowdown. In fact, from its historic high in May 2008 to the March lows, the Dow Transports plunged 61%! In contrast, the Dow Industrials and S&P 500 dropped a smaller 54% and 58%, respectively, during the period from their all-time highs in October 2007 to their March lows.

As a result of those steep declines and despite its tremendous out-performance over the past 5 months, the Dow Transports still hasn’t recouped quite as much of its bear market losses as the other major indices. Including Friday's gains, the Dow Transports has only recovered 55% of its losses incurred after the Lehman bankruptcy in September. In comparison, the Dow and the S&P have retraced 59% of their losses and the Nasdaq has recovered 74% of its losses incurred from last September to March.

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