FedEx plunge could spell bad days ahead for market as bellwether Dow Transports index hits new low

Published Fri, Sep 16 202211:33 AM EDTUpdated Fri, Sep 16 20222:48 PM EDT

The Dow Jones Transportation Average briefly tumbled 6% to a fresh 52-week low early Friday in the wake of FedEx saying that shipping volumes have weakened lately because of a possible impending global recession. In fact, Dow Transports — consisting of 20 railroad, airline, trucking and freight logistics stocks, ranging from Alaska Air to United Parcel Service — touched its lowest point since February 2021 or 19 months ago. The Dow Jones Industrial Average on Friday was only at its lowest since the middle of July. FedEx alone nosedived almost 25% at its low on Friday, putting it on pace for its biggest one-day loss since it went public in the late 1970s. All that spells bad news for the broader market outlook as outlined by the more than 100-year-old Dow theory. Charles Dow, the founder of The Wall Street Journal, held that downside or upside moves in the Dow Jones Industrial Average need to be confirmed by similar type moves in the Dow Transports index. Divergences are bad. That's a problem in 2022, with the Dow off 16.2% year to date and Dow Transports down more than 22%. "Being a student of the market, I think Dow theory is definitely a valid thing to watch," said Peter Boockvar, chief investment officer of Bleakley Financial Group. While the age-old theory is followed by technical analysts, or those who study just charts, the method makes fundamental sense given the transportation sector is among the first to see the changes in an economic cycle. "The FedEx news, combined with the Dow Transports hitting a new low, has ominous implications for the market, at least in the near term.," The Dow Transports being coincident with the Industrials confirms both uptrends and downtrends. The reason being that, even though a lot of consumers shop online, because we don't yet have a Star Trek-like transporter, we still need the transportation companies to deliver the things we shop for online."Because of this, "transportation still offers a good guidance as to what the likely direction will be for the industrials."Sam Stovall, chief investment strategist at CFRA Research Even before the FDX wreck, BofA Securities technical analyst Stephen Suttmeier recently argued that, "the Dow Theory sell signal from earlier this year remains intact as long as the Dow Industrials and Transports stay below their 8/16 peaks. A higher low vs. the June low followed by a move above the mid-August highs is needed for a bullish Dow Theory signal." — CNBC's Fred Imbert, Gina Francolla and Michael Bloom contributed reporting