The Dow Jones Transportation Average is down 12% this month, roughly double the declines by the S&P 500 and Dow industrials
Shares of transportation companies are falling twice as fast as the hard-hit U.S. stock market, reflecting investors’ expectations that a recession is likely ahead.
The Dow Jones Transportation Average, which tracks 20 large U.S. companies ranging from airlines to railroads to truckers, has declined 12% this month. The S&P 500 and the Dow Jones Industrial Average are down about half that much.
Historically, declines in transportation stocks have indicated rough economic times ahead amid lower demand for goods, materials and travel—which is widely expected as a result of the Federal Reserve’s most aggressive tightening cycle in decades.
“That’s a confirmation we’re headed for a recession,” Peter Cardillo, chief market economist at Spartan Capital, said of the downturn in transport stocks. Mr. Cardillo forecasts there will be a mild global recession at the end of this year, lasting until the second quarter of 2023.
The transport index is on pace for the largest monthly percentage decline since March 2020, when pandemic-driven restrictions and lockdowns halted travel and disrupted global supply chains. It is down 26% this year and trading at its lowest level since late January 2021.
Behind the slide? FedEx Corp. FDX -4.31%▼ executives recently spooked investors when they warned of a looming global recession and outlined plans to raise shipping rates to help offset lower volumes of goods moving around the world. Shares of the delivery giant are down 29% this month.
Transportation stocks were hit by FedEx’s plan to raise shipping rates amid lower volumes of goods moving globally.
“They built out a lot of capacity when everyone was buying stuff, and now they’re stuck with excess capacity,” Peter Boockvar, chief investment adviser of Bleakley Financial Group, said of some transportation stocks. “At the same time, people are buying less stuff.”
Other stocks suffering steep declines in September include United Parcel Service Inc.,UPS -1.57%▼ down 16%; rental-car company Avis Budget Group Inc., CAR 0.45%▲ down 17%, and freight railroad company Norfolk Southern Corp., NSC -1.33%▼ down 10%.
Mr. Boockvar said the valuations of some transport stocks have fallen far enough to become attractive buying opportunities again.
Stocks across sectors have come under pressure this year as the Fed has aggressively raised interest rates to tame inflation and slow the economy. Last week, Fed Chairman Jerome Powell signaled that additional large rate increases are likely even if they raise the risk of a recession. Global central banks have joined the Fed in raising rates, intensifying fears of a global slowdown.
The Baltic Dry Index, which measures the cost of shipping around the world, has sharply retreated from its highs earlier in the pandemic and recently touched its lowest level since June 2020. Late summer is typically the industry’s peak season, but many cargo owners shipped holiday goods early and inflation has dented consumer demand.
Sentiment has also been bruised by high energy prices and labor disagreements between the biggest freight railroads and union leaders. Brent crude has declined in recent weeks but is still up 11% in 2022.
“It doesn’t surprise me that prices have come down so much,” said Olivia Engel, senior managing director of State Street Global Advisors and chief investment officer of Active Quantitative Equity. Ms. Engel said it is unlikely that investors will become bullish on logistics companies in the near term since they are central to the global economy.