Ship it! Transport stocks surge in what may be a good sign for market as a whole

Transportation stocks deliver

Transportation stocks are rallying on the heels of the holiday season, and that may be a bullish indicator for the market and the economy at large.

Railroad company Norfolk Southern and trucker J.B. Hunt are up 10 percent and 11 percent, respectively, in the last two weeks. United Parcel Service and FedEx are both up 5 percent in the same time frame. All four have hit 52-week highs this week.

These kind of stocks are typically considered reliable gauges of economic health, based on the wide range of goods carried.

From a technical perspective, the rally in transports and delivery stocks has been evident all year, according to Chris Verrone, head of technical analysis at Strategas Research Partners. Verrone said the top-weighted stocks in the sector like FedEx and UPS are showing growth, which he said is a bullish sign for the space as a whole.

Relative to other parts of the market, he said, investors have been rewarded for owning transportation stocks this year, and he sees upside ahead.

"You've been getting paid to own these stocks versus other segments of the market, so versus the bond proxies, or versus the staples, or the utilities, so that's the big change as far as we're concerned; you're getting paid to own transports, as opposed to something else — so big change, bullish change."

Investors are expecting to see fiscal stimulus and tax cuts under a Trump presidency, said Chad Morganlander, portfolio manager at Stifel Nicolaus, and "what everyone is doing is upping their GDP expectation for not only 2017, but beyond — 2018."

"So this is one of the critical reasons why we've had this get up and go in the transportation sector. We believe that is justified; we believe that earnings are going to be quite robust going into 2017 and 2018. And valuations? They make sense at this point," he said.

Morganlander expects gross domestic product to increase by little more than 2.5 percent next year and 3 percent in 2018.

The iShares Transportation Average ETF (IYT) — top-weighted holdings of which include FedEx, United Parcel Service, Norfolk Southern and rail name Union Pacific — is up about 11 percent in the last month.

These bullish moves come even as truck tonnage fell in October for the second straight year-over-year decline, according to the American Trucking Association.

"While seasonally adjusted tonnage fell, meaning the not seasonally adjusted gain wasn't as large as expected, the bottom of the current tonnage cycle should be near," Bob Costello, American Trucking Associations chief economist, said Monday in a statement.

"There are some recent trends that suggest truck freight should improve, albeit gradually, soon," he said, citing positive retail sales, housing data and factory output.