Who's Picking Up The Slack For The Transports

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by: Bespoke Investment Group

If you have even a passing interest in the market, you probably have noticed that the Transports have really stalled out of late. Following Tuesday's declines, the Dow Jones Transports is now closing in on "correction" territory with a decline of just under 10% from its highs last year.

Although Dow Theory suggests that the Transports are a leading indicator for the economy, it is important to note that the Transportation industry group in the S&P 500 accounts for less than 3% of the entire index; it's actually smaller than Apple (NASDAQ:AAPL). That being said, we would prefer to see them doing well than sucking wind.

As Transports have worked their way down the leaderboard, we wanted to take a look at which of the 24 S&P 500 industry groups have been filling its void. The chart below shows the relative strength of each of the 24 S&P 500 industry groups over the last six months. For each series, a rising line indicates that the group is outperforming the S&P 500 while a falling line indicates underperformance versus the S&P 500. In order to make the chart somewhat legible, we have grayed out a lot of the series just to focus on the major moves.

After trending steadily lower in the last six months, Transports just overtook Utilities as the industry group with the weakest relative strength. On the upside, Consumer Services, which is made up of Hotel, Restaurant, and Leisure stocks is the top-performing industry group, followed by Health Care Equipment. Health Care Equipment is still comfortably in the second spot among the industry groups, but its sideways move since April shows that the sector has lost a lot of its momentum.

Outside of the leaders and laggards, though, the real standouts have been Financial related groups to the upside and the Food, Beverage, and Tobacco industry group to the downside. Check out the recent moves in Insurance and Banks in the last several days. Last week, it was in the middle of the pack on a relative basis, but it has now moved all the way up to the third spot in terms of outperformance.

Similarly, Banks were among the weakest groups heading into June, but have surged relative to the S&P 500, working their way right into the middle of the pack. While these two groups have reversed higher, Food, Beverage, and Tobacco stocks have really been crushed, going in the complete opposite direction as the Insurance group. Moves like this reinforce the point that while certain trends may feel like they are fully entrenched, things can and often do change quickly.