Wall Street Warning Signs: Dow Transportation Stocks, Treasuries Falling – Analysis and Forecast – June 3, 2024

The Dow Jones Transportation Average (.DJT) is down about 5% this year, a stark contrast to the S&P 500’s (.SPX) gain of 9% and the Dow Jones Industrial Average (.DJI)’s 1% gain since the beginning of the year. The number exceeded 40,000 for the first time this month.

While major indices like the S&P 500, Nasdaq Composite (.IXIC), and Dow have all hit record highs this year, the Dow Transportation Average has yet to surpass its November 2021 record and is currently down about 12% from that level. .

Some investors believe the continued decline in the 20-component transportation index, which includes railroads, airlines, trucking companies and trucking companies, could signal economic weakness. Additionally, if these companies fail to recover, it could prevent them from achieving greater gains in the broader market.

Other struggling sectors include small-cap stocks, which some analysts say are more sensitive to economic growth than larger companies. Also struggling are real estate stocks and some large consumer goods companies such as Nike (NKEN.N), McDonald’s (MCD.N) and Starbucks (SBUX.O).

Data this week showed the U.S. economy grew at an annual rate of 1.3% in the first quarter, well below the 3.4% growth rate in the fourth quarter of 2023. Key tests to gauge the strength of the economy and markets include: The monthly U.S. employment report is released on June 7.

Among Dow transportation companies, the biggest decliners this year were car rental company Avis Budget (CAR.O), down 37%, trucking company JB Hunt Transport (JBHT.O), down 21%, and airline American Airlines: It’s the same. (AAL.O), down 17%.

Large package delivery companies UPS (UPS.N) and FedEx (FDX.N) also declined, falling 13% and 1%, respectively. Railroads Union Pacific (UNP.N) and Norfolk Southern (NSC.N) fell about 7%. Only four of the 20 transportation components beat the S&P 500 this year.

The stock market also fell this week, with the S&P 500 index down more than 2% from its all-time high in early May. Rising bond yields have raised concerns about future stock returns.

Not all investors agree that transportation indices accurately reflect the health of the broader economy. Like the Dow Industrials, this index is weighted by price rather than market value and includes only 20 stocks.

Meanwhile, semiconductor manufacturers, another important group of companies that are also considered economic indicators, are performing much better.

The Philadelphia SE Semiconductor Index (.SOX) is up 20% this year. As interest in the business opportunities of artificial intelligence grows, investors are pouring into Nvidia and other chip companies that could benefit.

The overall market trend remains optimistic, according to Horizon’s Carlson, who tracks both the transportation and Dow industries to gauge market trends according to the “Dow Theory.”

The MSCI Global Stock Index rose Friday afternoon as investors reassessed their month-end positions. Meanwhile, the dollar and Treasury yields fell as data showed that U.S. inflation rose slightly in April.

The MSCI All-Country World Price Index (.MIWD00000PUS) fell sharply for most of the session before turning positive ahead of the index rebalancing.

At the end of trading on Wall Street, the global index rose 0.57% to 785.54, having previously fallen to 776.86.

Before markets opened on Friday, the Commerce Department reported that the personal consumption expenditures (PCE) price index, commonly known as the Federal Reserve’s preferred measure of inflation, rose 0.3% last month. This is in line with expectations and increases for March.

Meanwhile, the core PCE index rose 0.2% from 0.3% in March.

The Chicago Purchasing Managers’ Index (PMI), which measures manufacturing in the Chicago area, fell from 37.9 the previous month to 35.4, well below economists’ expectations of 41.

MSCI indexes fell for a second straight week but still posted monthly gains.

On Wall Street, the Dow Jones Industrial Average (.DJI) rose 574.84 points (1.51%) to 38,686.32. The S&P 500 (.SPX) rose 42.03 points (0.80%) to 5,277.51, and the Nasdaq Composite Index (.IXIC) fell 2.06 points (0.01%) to 16,735.02.

Earlier, the European STOXX 600 (.STOXX) closed 0.3% higher. The index rose 2.6% for the month, but fell 0.5% this week, marking its second consecutive week of declines.

Data showed euro zone inflation topped expectations in May, but analysts said the European Central Bank (ECB) was unlikely to be able to stop a rate cut next week. But the case for a July moratorium could be strengthened further.

The dollar index, which measures the dollar against a basket of currencies including the yen and euro, fell 0.15% to 104.61, its first monthly decline in 2024 since the data was released.

Against the Japanese yen, the euro was trading at $1.0849, up 0.16%, and the dollar was trading at 157.24, up 0.27%.

Treasury yields fell in April as signs that inflation was stabilizing suggested the Federal Reserve could cut interest rates later this year.

U.S. 10-year yields fell 5.1 basis points to 4.503% from 4.554% on Thursday afternoon, while 30-year yields fell 3.4 basis points to 4.6511% from 4.685%.

The two-year Treasury yield, which generally reflects interest rate expectations, fell 5.2 basis points to 4.8768% from 4.929% on Thursday afternoon.

In the energy sector, oil prices fell as traders focused on Sunday’s OPEC+ meeting to decide on further production cuts.

U.S. crude oil fell 1.18% to $76.99 per barrel, and Brent crude oil fell 0.29% to $81.62 per barrel.

On this day, the price of gold also fell 0.68% to $2,326.97 per ounce. However, the precious metal still recorded its fourth consecutive month of gains.