(Bloomberg) -- Airlines, railroads, shippers and other transportation companies are “a pretty poor lead indicator” of U.S. stocks if history is any guide, according to Jeremy Hale, Citigroup Inc.’s head of macro strategy.
As the chart shows, the Dow Jones Transportation Average dropped as much as 9.96 percent since Dec. 29, when the 20-stock indicator set a record. A 10 percent loss is commonly defined as a correction.
The slump led Hale and four colleagues to look at the relationship between 10 percent retreats in the Dow transports and subsequent moves in the Standard & Poor’s 500 Index, which also appears in the chart. They presented the data in a report on June 4.
Since 1942, the S&P 500 rose on average in the one, three, six and 12 months after dates when the transportation average’s losses reached the correction threshold, according to the data. The gains amounted to 2.1 percent, 4.7 percent, 12.1 percent and 21.3 percent, respectively.
“The evidence is more mixed” about whether 10 percent losses in the transports foreshadow the peak of bull markets, Hale and his colleagues wrote.
In 1946, 1968, 1981, 1994 and 2008, the S&P 500 started falling before the Dow average did, according to charts cited in the report. On the other hand, the transports served as an early warning in 1956, 1973, 1989 and 2000.
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