More Bricks For Wall Of Worry

9/11/2017


Stocks have wavered in recent days, hit by threats both natural and man-made. Investors have been spooked by the prospect of another major hurricane hitting the U.S. coast, while tensions with North Korea continue to escalate. President Trump resumed an erratic course on foreign trade, most recently proposing to break off relations with anyone who trades with North Korea, a group of more than 100 countries including China. Nearly lost in the commotion, U.S. lawmakers must also pass a new debt ceiling this month.

Transports shrug off slumping airlines

Despite the political and weather-related angst, the Dow Transports remain up 1% since the end of July, while the Dow Industrials have retreated 1%. 

For the more concentrated and economically sensitive Transports, trucking stocks have led the way, gaining 9% since July, followed by railroads and air-freight and logistics stocks, both up 2%. Shipper FedEx ($212; FDX), upgraded to the Buy List this week, has grinded 3% higher and is now up 15% for the year.

No transport group has been weaker than airlines, which have slumped 10% since July. Southwest Airlines ($52; LUV), down 8%, has fared better than most of its peers; it's also the only airline stock up for the year, climbing 3%.

Not helping matters, Southwest, Delta Air Lines ($47; DAL), and United Continental ($60; UAL) recently cut their September-quarter guidance for unit revenue. Their new guidance signals weaker pricing power, caused by industrywide fare cuts. 

Adding to the airline group's troubles, Hurricane Harvey forced the shutdown of Houston's airports for several days and drove fuel prices higher. With Hurricane Irma barreling toward Florida, the group could face additional disruptions. Yet the airline group looks attractive in Quadrix®, earning an average Value score of 91 and Overall score of 84 — highest of the five transport groups.

Conclusion

No one wins from a nuclear war breaking out, the debt ceiling getting breached, or trade pacts collapsing. Although they behave irrationally at times, world leaders and lawmakers have a strong interest in maintaining the status quo. It seems like a safe bet that their instincts for self-preservation will kick in to avert any of these disasters.

Both the Industrials and Transports hover within 5% of their record highs. We are still waiting for a move above the Industrials' high of 22,118.42, set on Aug. 7, and the Transports' high of 9,742.76, posted on July 14. Following this week's rank changes, our buy lists now have 91% to 98% in stocks.


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