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Market Recon: As Go the Transports, So Goes the Economy

"I want the U.S. Treasury, debt management, to issue 100-year bonds as soon as possible, to take advantage of generational interest rate lows that we will not see again for hundreds of years." -- Larry Kudlow, this past December.

As the World Turns

The Dow Jones Industrial Average closed at a new record last night. The overall move was small, and the index had spent part of the day in the red, but by day's end, there it was. A 10th consecutive record close. The broader market is not quite as strong. The S&P 500 opened higher on Tuesday after the holiday weekend, and has traded in a range all week. No, the S&P 500 and it's second highest close of all time do not truly concern me. The Transports, however, they concern me.

The Dow Jones Transportation Average sold off for the second day in a row yesterday, giving up 1.2% on Thursday alone. This took that index all the way back to levels not seen in two weeks. Now, the DJTA stands only about 85 points above its 50-day simple moving average (SMA), with a neutral RSI (Relative strength Index), and a MACD (Moving Average Convergence/Divergence Oscillator) that looks to be going through a negative crossover on a daily six-month chart.

Trouble? Could be. As go the transports, so goes the economy, and eventually... the blue chips. That's basic Dow Theory. Do we need to temper expectations for growth and the agenda in Washington? It does seem to fit the story that tax reform may take longer, and that fiscal spending may also take longer to get on the tape than most of us were hoping. Does it not? Look, none of us know the future, and we don't know if this is a blip for the transports, or the start of a significant change in trend. The recent weakness is evenly spread across the rails, the airlines, and delivery services. To completely discard this warning would be foolish.

Impacting Perception

Treasury Secretary Steven Mnuchin was all over the media yesterday. We do know that as a nation, we are shooting for GDP growth of 3% plus. Now, we know that any tax overhaul will be put off for a while due to the legislative need to put health care first, and the battle between the need for some kind of border adjustment that is a major component of...


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