Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Dow Jones Transportation Stock Index Rolls to Record High

Stock-Markets / Stock Markets 2011 May 02, 2011 - 06:08 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleJon D. Markman writes: The biggest news of the week for me was the fantastic earnings report from railroad Norfolk Southern Corp. (NYSE: NSC), which pushed the Dow Jones Transportation Average to a new record high.

Think about that. New. All-Time. High. For the transports. The transports! When crude oil prices are pressing $112 a barrel. When the economy is limping along at an annualized growth rate of less than 2%. When the bears said we should be diving for cover.

The railroads have been killing it, and not just the likes of NSC, Union Pacific Corporation (NYSE: UNP) and CSX Corporation (NYSE: CSX). It's also the freight expeditors and truckers like C.H. Robinson Worldwide Inc. (Nasdaq: CHRW), Expeditors International of Washington (Nasdaq: EXPD), and Ryder System Inc.(NYSE: R).

A lot of these stocks are in my recommended SPDR Industrials ETF (NYSE: XLI) fund, so owners can do a fist-pump over this achievement. New highs for stocks and indexes mark moments when the average shareholder has emerged a winner. New highs remove sellers' overhang, allowing stocks to move up more freely.

This is why nothing is more bullish than a new high (except the last one). Once you get the first one, a lot more tend to follow. And once you have a major index like the DJTA make a new high, then others -- Dow Jones Industrial Average, we're talking about you - tend to follow. So don't fear new highs, figuring they mark an end. They are more often new beginnings.

It's possible this was a false breakout for the Dow Transports -- one happened in May 2008, just before the bear market got under way -- but probably not at current price/earnings multiples, not when credit is plentiful, not when the Fed is pushing ZIRP (zero interest rate policy), not when sentiment is still dour.

GDP Shocker
Maybe the strangest thing about the transports hitting a new high is that it happened just as the economy threw a brick at the backboard.

The latest U.S. Commerce Department report shows domestic U.S. growth clocked in at a mere 1.8% annualized in the first quarter -- way down from the 3.5% that had been expected earlier in the month. It was attributed to the surge in energy prices as well as bad weather, both of which economists judge to be transitory.

You knew this was coming. We have talked about it a lot. But it's still a bit of a shocker.

Among the key components dragging GDP down: Consumption growth slowed to 2.7% from 4% the prior quarter; business investment rose by just 1.8% as a 11.6% gain in equipment investment was offset by a 2.1% drop in structure investment; and residential investment fell by 4.1%.

Also notable was an 11.7% decline in national defense spending, which economists believe will reverse in the current quarter. And finally, also on the negative side, was a 3.3% decline in state and local government spending, which reflects municipal finances.

While a 1.8% annualized growth rate is pretty weak at any time, and may well have legitimate causes such as the bad winter weather, that it occurred at a time of tremendous monetary and fiscal stimulus has to knit some brows among policy makers.

The economy should be getting a lot more bang for its buck. Such anemic growth gives the Federal Reserve more cause to maintain its stimulative policies. It's one of those "bad news is good news" deals, at least from the Fed's point of view.

Stocks, bonds and commodities swung higher again over the past week on surprisingly low volume, as more than 100 major companies reported stronger-than-expected earnings. The market is celebrating the Fed's decision to keep current monetary policy in place and shrugging off signs of weakness, like the slowdown in GDP growth and rising unemployment claims.

Fed chief Benjamin S. Bernanke might as well have ended his press conference on Wednesday with the exclamation, "Party on!" because that's what the markets heard between the lines of his otherwise sonorous comments. He essentially said it's still happy hour at the Easy Money Inn, and the drinks are on the house.

Markets Keep Chugging
TheDow Jones Industrials rose a mighty 2.6%, the Standard & Poor's 500 Index rose 1.9%, the Nasdaq Composite rose 1.8% and the Nasdaq 100, weighed down by Microsoft Corporation (Nasdaq: MSFT) and Research in Motion (Nasdaq: RIMM), rose only 1.1%.

Breadth was positive, with advancers leading decliners by a 3-2 margin, and volume was average. New highs rose to 998 by the end of the week, while new lows flat-lined at 95. The leaders are back to serving as the locomotives of this train; sellers are getting out of the way.

If this move to the upside despite bad economic news makes no sense to you, then use the U.S. dollar as your decoder ring. It's dropping like a rock without a parachute, and no one in the U.S. government is doing a thing to stop it unless you consider lip service some sort of safety net.

It's been the same old story since the start of the first round of quantitative easing: ZIRP = lower dollar = higher stocks and commodities.
The S&P 500 has now cleared the inverse head-and-shoulders pattern discussed last week; as long as it remains above 1,345 its next measured target is 1,440. The next target for gold futures is $1,620 an ounce; the next target for crude oil is $128 a barrel.

Without a doubt there will be a lot of volatility along the way. But odds are high these targets will be met by year-end unless the Fed drops a bombshell and decides to raise interest rates in the fall.

Something else that jumped out at me this week was the moon shot in silver prices to a 30-year high just above $50, though they did settle back to $47.90. Some see a bubble in silver, but you could just as easily say it merely reflects the popping of a bubble in the dollar.

The U.S. dollar index fell 1.4% in the past week to a new two-year low, so the rise in commodity prices mostly just reflects the reality that it takes more dollars to buy a given amount of raw materials. One more example besides gold and silver: Cocoa, which can be bought in the exchange-traded fund iPath Dow Jones-UBS Cocoa Subindex Total Return ETN (NYSE: NIB) as shown above.

Bottom line:The markets are overbought, and so are overdue for a slight setback or flat spot. It may be just enough to get the "sell in May" crowd going, but the spring surprise this year might well be a flash higher in May and June rather than another 2010-style wipeout.

Credit Canard
Oddly, the main thing investors seem to be worried about is what will happen to the government debt market after the Fed stops its $600 billion bond-buying campaign (QE2) in June.

And yet the credit market is trading as if it doesn't have a care in the world!

This is because most credit investors realize there is actually a dearth of debt to buy -- strange but true -- and that the bonds the Fed has been buying will be snapped up.

Remember last year around this time when the Fed announced it would stop buying mortgage debt? Everyone freaked out, fearing mortgage rates would soar as mortgage bond prices crashed.

That has hardly been the case, as we know from the results of our DoubleLine Total Return Bond I (MUTF: DBLTX) fund, and theAmerican Capital Agency Corp. (Nasdaq: AGNC) position, both of which buy virtually nothing but mortgage debt yet have been fantastic performers.

Above is the iShares Lehman MBS Bond Fund (ETF) (NYSE: MBB), which bears swore would collapse in the middle of last year when the Fed stopped buying mortgages.

But it didn't happen because private and overseas investors stepped in to buy these credits, mostly on margin to amplify returns, and have been so amply rewarded for it they have continued buying.

And as long as we're on the subject, let me add that AGNC reported earnings last week of $1.30 per share, which was in line with consensus expectations. It's a leveraged mortgage REIT (real estate investment trust) yielding 19.2% per year.

The Week Ahead
May 2: Construction spending (3/11); ISM Index (4/11); Auto Sales; Truck Sales
May 3: Factory orders (3/11)
May 4: MBA Mortgage Index for week ending 4/29; Challenger Job Cuts; ADP Employment Change; ISM Services; Crude Inventories
May 5: Initial jobless claims; Continuing Claims; Productivity; Unit Labor Costs
May 6: Nonfarm payrolls (4/11); Unemployment Rate (4/11); Hourly Earnings; Average Workweek; Consumer Credit (3/11)

Source :

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in