Transports Drive Stock Rebound as Oil Optimism Drowns Out Ebola

The biggest transport-stock rally since 2011 is driving a turnaround in U.S. equities, with stocks from JetBlue Airways Corp. to Ryder System Inc. rallying four times as fast as the market on optimism about cheap oil.

After falling 11 percent into a correction between Sept. 18 and Oct. 13, the Dow Jones Transportation Average has snapped back 9.7 percent in six days as concern about Ebola receded and investors focused on profits. The 30 airlines, trucking companies and railroads are forecast by analysts to post average profit growth of 16 percent through 2016, compared with 9.6 percent for the Standard & Poor’s 500 Index.

“Transportation stocks that were hit relating to the Ebola should’ve been going up with oil coming down,” Walter Todd, who oversees about $1 billion as chief investment officer for Greenwood, South Carolina-based Greenwood Capital Associates LLC, said in a phone interview. “Not seeing a new case of Ebola or some story about that every 30 minutes is helpful.”

The advance is underpinning the steepest four-day rebound in the S&P 500 since February, pulling stocks up after the index fell as much as 9.8 percent in the month ended Oct. 15, using intraday prices. Markets are getting more lift because energy stocks, which plunged as much as 18 percent since the start of September, jumped 6.1 percent as oil prices held above $80.

Airlines have reaped the biggest gains. Since Oct. 13, shares of JetBlue, the Long Island City, New York-based carrier, United Continental Holdings Inc. in Chicago, Atlanta-based Delta Air Lines Inc. and Southwest Airlines in Dallas have climbed an average of 20 percent. Every stock in the Dow transportation gauge has increased over the period, with the smallest rise coming in Norfolk Southern Corp. at 5.9 percent.

$400 Million

Every $1 drop in the price of a barrel of oil boosts annual U.S. airline industry pretax profit by about $400 million, according to Michael Linenberg, a Deutsche Bank Securities Inc. analyst.

Concern about the spread of the deadly Ebola virus sent transportation shares to some of their biggest retreats of the year after the first U.S. case of the disease was confirmed on Sept. 30. The Dow transport average tumbled 2.5 percent on Oct. 1 and Oct. 7 and then slid 6.5 percent over three days starting Oct. 9.

The U.S. Department of Homeland Security said today that passengers arriving in the U.S. from three West African nations will be directed to enter through five airports where agents are conducting enhanced screening. The few travelers who don’t already connect through Atlanta, Chicago, Newark, New York and Washington will be forced to take flights that stop in those cities, according to a statement.

‘Fears Shrink’

“Ebola still seems to be a present danger, but I think the panic may be mitigating,” Brian Peery, co-portfolio manager at Novato, California-based Hennessy Advisors Inc., wrote in an e-mail. “We own a number of the airlines and think that if the Ebola fears shrink they are a great sector to be in with lower oil prices.”

Under certain scenarios in a strategy known as Dow Theory, losses in the Dow Jones Industrial Average are seen as worsening if they coincide with declines in transportation stocks. From a record in September, the industrial average slid 6.7 percent versus an 11 percent tumble in the transports.

“I’m encouraged by the transports,” said Richard Moroney, chief investment officer at Horizon Investment Services in Hammond, Indiana, and editor of the Dow Theory Forecasts newsletter, in a phone interview. “They took a real shellacking and to see people coming back to those to me suggests that people are looking at the economy and saying, ‘maybe it’s not so bad.’”