US economy and Dow Transport Index

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golfallday
Posts: 118
Joined: Sat Feb 14, 2009 3:43 am
Location: College Point, NY

US economy and Dow Transport Index

Post by golfallday »

I listen closely to what Dr Bernanke says about our economy. I also listen, or read, whenever FOMC Governors or Reserve Bank Presidents speak about our economy. I respect their collective opinion. These are scholars that also have worked in the real world. Unemployment is 7.5% with concerns that the "under-employed" along with people who have given up looking for a job make the "real" unemployment figure perhaps 15% or worse. All of these scholars agree the current economy is much better than 5 years ago, yet it's a very fragile economy because of the lingering unemployment woes.

I have always felt the Dow Jones Transport Index represented by IYT is a great tell of how the US economy is doing. The old saw being, "So go the transports, so goes the economy."

IYT is +25% YTD; +53% over the past 3 years; and +35% over the past 5 years. I think it would be difficult for the rail companies to play funny math with their numbers. Either they are moving freight (which has been bought or is going to be bought somewhere), or they are not.

There seems to be a tremendous disconnect between the cautious comments of FOMC members regarding the US economy and the robust Transport Index. Is the market (IYT) wrong here or are the FOMC members? Am I in error trying to correlate the state of US economy with the Dow Transport index?

I do not hold any individual transport stocks, I do not invest in IYT; I hold transport stocks indirectly through VIIIX and SWTSX.
ourbrooks
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Joined: Fri Nov 13, 2009 4:56 pm

Re: US economy and Dow Transport Index

Post by ourbrooks »

Dr. Bernanke and crew have probably been looking at earnings, not stock price. The stock price could rise because people are willing to pay more for stocks, not because the earnings of the companies have increased. IYT represents just one of the many boats in the harbor when the tide comes in.

Also, you'd have to adjust the rail revenues for the revenue from transporting crude oil; these revenues have grown at the expense of pipeline companies because the pipelines currently don't run in the right directions and doesn't really represent business growth.

Judging the health of a large national economy based only on the stock performance of ten companies is bound to give misleading results. I suspect that the Federal Reserve Board looks at hundreds, if not thousands, of different measures in making their decisions.
leo383
Posts: 485
Joined: Thu Nov 29, 2007 9:36 pm
Location: Durham, NC

Re: US economy and Dow Transport Index

Post by leo383 »

Performance of US Economy =/= Performance of the US Stock Market, or any subset.

The last four plus years is a loud and clear indicator of this.
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fishnskiguy
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Location: Sedona, AZ

Re: US economy and Dow Transport Index

Post by fishnskiguy »

ourbrooks wrote:Also, you'd have to adjust the rail revenues for the revenue from transporting crude oil; these revenues have grown at the expense of pipeline companies because the pipelines currently don't run in the right directions and doesn't really represent business growth.
Exactly. The growth of crude transportation by rail has been phenomenal over the last two years. Part of my bike ride takes me next to Union Pacific's major rail line here in Colorado. It used to be 100% empty coal cars going west, full coal cars going east. Now, half the traffic is tanker cars.

Chris
Trident D-5 SLBM- "When you care enough to send the very best."
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