Transport Sector Signals Problems Ahead for Industrial Stocks
24 Juli 2019 - 10:14PM
Dow Jones News
By Jessica Menton
Caterpillar Inc.'s earnings disappointed on Wednesday, and there
are early indications that there's more pain coming for industrial
stocks.
Often, investors look to transport companies to glean what's
ahead for big industrial firms -- and the sector has had a bumpy
ride recently. Muted results from railroad operators, including CSX
Corp., were the latest dose of gloomy news.
Another worrisome sign for industrials: According to the Cass
Freight Index of North American shipments by truck and rail,
shipments declined 5.3% in June, the seventh consecutive monthly
decline. Cass Information Systems Inc., a processor of freight
payments for companies, points especially to a drop in chemical
shipments.
"We have asserted for years that one of the best predictive
indicators of U.S. domestic industrial activity is the chemical
carload volume moved via railroad," said the index report. "It is
almost impossible to manufacture, even assemble, anything in mass
quantity without chemicals."
The threat of tariffs are also weighing on industrial
companies.
"What's worrisome is that we're seeing high inventories across
the industrial world, perhaps related to trade tensions as
companies buy extra inventories," said Rob Wertheimer, a founding
partner and machinery analyst at Melius Research.
But even as the industrial economy comes under pressure, there
are signs from the transport industry that the consumer economy is
holding up. Packaging giant United Parcel Service Inc. reported a
30% jump in next-day air-shipping volumes for the second quarter
Wednesday, sending shares 8.3% higher -- heading toward their best
day since October 2008. Airliner JetBlue Airways Corp. beat
analysts' earnings estimates Tuesday.
Trucks, which are also closely tied to the retail sector, also
suggest consumer firms may fare better than industrials. Heavy-duty
truck maker Paccar Inc. missed profit estimates Tuesday, but
delivered a better-than-expected outlook for orders next year.
Write to Jessica Menton at Jessica.Menton@wsj.com
(END) Dow Jones Newswires
July 24, 2019 15:59 ET (19:59 GMT)
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