Over the last few trading sessions, the stock market has come under pressure with the Dow Jones Industrial Average falling almost 500 points with much finger pointing at the near persistent and sharp drop of late in oil prices.
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As any arm-chair economist will tell you, there are always supply and demand factors that need to be examined be it for oil, rare earth elements, coffee and even cocoa. When it comes to oil, there is ample supply, but we are also facing slowing demand as global growth slows. The Eurozone remains sluggish, December PMI data pointed to a contraction in China and similar data feeds for the U.S. suggested the fourth quarter was the slowest growing quarter of the year.
In times like these and I ponder what to do with The Thematic Growth Portfolio that I manage, I look to other indicators of the economy. This is true in “normal” times, but it’s also the case during earnings season, which kicked off earlier this week and will only see its velocity rise in the coming ones.
One of the indicators I use to track the economy is rail traffic and car loadings as well as truck tonnage. The logic is pretty simple, in order for consumers and companies to build or buy, product has to get to somewhere and that means rail and truck data is something to watch. While the most recent figures for those to data streams continued to be positive economic indicators – the American Trucking Association reported a 3.5% jump in November truck tonnage, and the Cass Freight Index indicated much the same, while the American Association of Railroads tallied a 9% year over year increase in December carloads – they’re also rear view mirror in nature.
For a more real time view on what’s going on the rails, CSX (CSX) issued its December quarter results Tuesday night, which were in line with Wall Street expectations. More importantly, the company shared a favorable outlook for the current quarter citing favorable volume trends in a number of key markets including agriculture, chemicals, metals, automotive and intermodal. In other words, more of the same. The lone negative commentary was reserved for coal, which hardly comes as a surprise.
Another sign things are looking better than the stock market has indicated over the last few days is the investment CSX plans to make this year, which includes adding to its fleet of railcars and locomotives. Good news for companies like Trinity Industries (TRN), American Railcar (ARII), and The Greenbrier Companies (GBX). The company’s investments include additional workers as CSX expects to increase its average headcount by 4% year over year. In my view, these are signs the underlying manufacturing economy remains on the growth trajectory we saw in 2014.
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CSX is just one rail company, but both you and I should look to confirm the company’s favorable outlook with other rail companies like Norfolk Southern (NSC), Union Pacific (UNP), Kansas City Southern (KSU) and others as well as leasing company GATX Corp. (GMT). If the commentary from those and other economically driven companies are confirming, this current market pullback could make for a nice buying opportunity, particularly for those companies that derive most of their profits from the U.S.