As the holiday season approaches, there are signs of a cooldown in economic activity in the US. Mish Schneider, chief strategist at MarketGauge.com, analyzes the flow of goods and services from producer to consumer to gauge the health of the US economy. She focuses on transportation, small caps, and retail sectors, using ETFs tied to each sector. The Russell 2000 index, seen as a barometer of the US economy, has been on a losing streak, and conflicts like the Israel-Hamas and Russia-Ukraine wars are contributing to cooling investor appetites [xxxxxxxx]. Industrial manufacturing and transportation sectors are slowing down, and retailers are beginning to falter due to inflation and high rates. However, retail might still save the holidays, as consumers with pandemic-era savings could prop up economic activity [xxxxxxxx]. Despite financial pressures, experts predict that consumers will still spend on holiday shopping, with some forecasters predicting a return to pre-pandemic shopping norms. However, due to inflation and rising prices, consumers expect to purchase fewer gifts for about the same amount of money [xxxxxxxx]. The labor market for holiday hires is cooler this year, with fewer seasonal workers being hired by major retailers. However, e-commerce and its supporting industries, such as warehousing and transportation, are experiencing high demand for workers [xxxxxxxx]. Despite uncertainties, holiday shopping is expected to be relatively normal as consumers continue to prioritize spending and parents make the holidays happen despite economic conditions [xxxxxxxx].
Consumer spending is the single most driving force for the economy and stocks. It constitutes a significant portion of the U.S. economy and directly contributes to economic growth. However, consumer spending has been growing at a slower pace compared to previous recoveries. Rising oil prices and commodity prices can impact consumer spending by reducing families' disposable income. The pace of recovery has been slow due to structural issues such as housing oversupply and debt burdens. The largest categories of consumer spending in the U.S. are housing, transportation, and food. The Retail Sector ETF (XRT) is underperforming the benchmark and failed to hold the 50-Day Moving Average. Consumer confidence is lower, and interest rates on housing are high. The author suggests watching XRT carefully to determine the next big move in the market [5d356d39].
The transportation sector in the US has been underperforming and is a crucial component of the economy, contributing approximately $1.2 trillion (5.4% of the US GDP). It encompasses various modes of transport and employs around 10.68 million Americans. Transportation emissions account for 27% of total US greenhouse gas emissions. The trucking industry is responsible for 72.5% of freight transportation. The sector requires ongoing investment in infrastructure. The Transportation Services Index (TSI) measures the volume of freight and passenger transportation services and can provide insights into economic shifts. Currently, the TSI is far from indicating a recession. Transportation stocks, such as IYT, have been underperforming, potentially signaling investor concerns about a potential recession. The freight TSI tends to be a lead indicator. The recent underperformance of the transportation sector may indicate a normal correction, a soft landing, recession, or stagflation. The article also mentions issues with inflation costs, shortage of construction workers, and accountability of benchmarks and ROI in the implementation of the $1.1 trillion infrastructure bill passed in 2021. [496ddede]
Transport stocks are currently experiencing a freight recession, but high-quality operators like Old Dominion Freight Line and XPO Logistics are well-positioned for an economic recovery. LTL operators have higher barriers to entry and more margin expansion potential than the truckload segment. Rail operators like Union Pacific and Canadian Pacific Kansas City offer cost advantages and are poised for earnings improvement, benefiting from reshoring trends. Despite the current headwinds, a freight recovery is expected in the future, and transport stocks with attractive competitive dynamics are set up well for a cyclical recovery [80f4879d].