The Dow Jones Transportation Average on Tuesday booked its longest stretch of consecutive losses since 2011, according to FactSet data.
However, the skid for the closely watched gauge — often used as a proxy for the health of the overall economy — is notable for both its shallowness and its occurrence in tandem with the Dow Jones Industrial Average DJIA, -0.05% mostly trading sideways.
Dow transports DJT, -0.82% fell for an eighth straight session, matching a decline that ended Aug. 2, 2011. Meanwhile, the Dow has finished in negative territory just over half the time over the same trading period.
Frank Cappelleri, executive director and technical analyst at Instinet, described the losses for the Dow transports as the shallowest of the past nearly 30 years.
“At [a loss of] 2.5% over the last eight days, it is also the most shallow decline for an eight day losing streak since (at least) 1990,” he wrote in a Tuesday research note. Transports have declined 3% over the past eight sessions, according to FactSet data, as of Tuesday’s close. The Dow industrials, meanwhile, have lost about 0.2% since Feb. 21 (see chart below):
Source: Instinet, LLC
By comparison, the last time the Dow transports fell for eight straight sessions, the Dow industrials shed nearly 7%. Moreover, during a lengthier 10-session skid for transports that ended Feb. 23, 2009, the Dow industrials declined by about 14% over the same stretch.
The benchmark reflects the performance of 20 large transportation companies, ranging from railroad operators to airlines and, according to proponents of the century-old Dow Theory, the gauge, along with the Dow industrials, tend to be an accurate barometer of domestic economic health.
It is hard to say what this period of drops says, if anything, about the state of the U.S. economy or the broader market.
For one, Dow transports, have risen 12.5% so far in 2019, enjoying an even sharper year-to-date climb than the Dow industrials, with a gain of 10.6%.
All but one of the Dow transport’s components are up so far in 2019. Alaska Air Group Inc. ALK, -2.89% is down 5.1% so far this year. Meanwhile, Avis Budget Group Inc. CAR, -2.52% has enjoyed a nearly 60% rise since the end of last year, making it the biggest gainer among transports.
After selling off in later part of 2018, the broader equity market has enjoyed handsome returns, purportedly on the back of an easing of trade tensions between the U.S. and China and a Federal Reserve that has expressed a momentary reluctance to take borrowing costs much higher after the financial markets convulsed last year.
Moves in the Dow reflect a market that is rangebound and finding few catalysts to take it substantially higher, a sign that benchmarks may be losing upward momentum, analysts say.
Instinet’s Capelleri said that the current dynamic between industrials and transports will be an important one to watch for signs that the market is exhausted after racking up strong gains in 2019.
“So, this may be a quiet eight day slide, but it is an important one to watch. Will the first REAL dip be bought? If not, then a minor divergence could turn into a more ominous one,” he said.
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