The Dow Jones Transportation Average (TRAN) surged the most in more than eight months, led by railroad Kansas City Southern, as growing confidence in the U.S. economic recovery strengthens demand for freight shipments.
Businesses rebuilding inventory are poised to make 2013 “the year of transports,” Peter Nesvold, a New York-based analyst for Jefferies & Co., said today in a note to clients. He cited recent increases in diesel-fuel consumption, truck-freight tonnage and domestic air cargo.
“It makes sense that an inventory restocking cycle should be positive for freight flows,” Nesvold said in the note. “Nascent signs of inventory restocking so far have been more pronounced in wholesale channels than at the retail level. Even still, we think this rally still has legs.”
The 20-stock transportation index, which includes airlines and truckers, climbed 2.9 percent at the close in New York for the biggest advance since June 6. Kansas City Southern jumped 6.2 percent to $103.94, its largest gain since August 2011.
Trading of the Dow transports today was more than three times higher than the 100-day average, according to data compiled by Bloomberg. Dow Theory, a trading strategy used by some investors, says that the transportation index and the Dow Jones Industrial Average must move higher in tandem for equity market rallies to last.
Today’s gains for transportation stocks pushed the index’s year-to-date increase to 13 percent, compared with a 7.4 percent boost for the Dow industrials.
Kansas City Southern (KSU) rallied after Christopher Ceraso, a Credit Suisse Group AG analyst in New York, wrote that a new oil storage facility in Port Arthur, Texas, could help the carrier handle more petroleum extracted from western Canada.
“We see the opportunity to move heavy Canadian crude to the Gulf as one of the largest growth drivers within KSU’s energy business over the next few years,” Ceraso said in the note. Credit Suisse rates the railroad as outperform.
The Kansas City, Missouri-based railroad operates on tracks in the central U.S. and in Mexico, and it serves petroleum ports along the Gulf of Mexico that include Houston.
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