Transports moving ahead
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April 18, 1997: 8:43 p.m. ET
While Dow is off earlier pace, transport stocks set new records
From Correspondent Jody Davis
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NEW YORK (CNNfn) - According to Wall Street, the best way to spot a trend in the markets is to look at both the Dow Jones industrial and transportation averages.
But that theory isn't much help in explaining what's been happening in the markets lately. The Dow's transportation index Friday drove to a new record of 2,501.33. In contrast, the Dow's index of 30 big U.S. companies closed at 6,703.55, well below its record high of 7,085.16.
The transportation index, which is composed of the 20 stocks in the airline, rail and trucking industries, started an upward march last July and haven't looked back since.
Al Goldman, strategist for A.G. Edwards, said while the transportation index isn't the barometer that it once was, its rise is still important.
"It's still a reflection of people's conception about the outlook for the economy because planes, trains and trucks still move freight," he said. "It is not nearly as important a factor as it was many years ago, but I'll take it. I'm a bull and I love to see the transports flying."
Traditionally, analysts have seen the transports as a leading indicator of where the broader market is heading next. But they're not so sure anymore.
Right now, Goldman says, the transports are simply playing catch up after lagging behind the Dow industrials' big move of late 1996 and early 1997.
Airlines have led the recent rally. With airfares up and the price of jet fuel down, major carriers like Delta Air Lines and United Airlines are posting record earnings.
The trucking industry emerged from a major slump last fall. Now, freight rates and volume are both climbing steadily.
The transport index would be even further into record territory if not for the sluggish railroad industry. Bernadette Murphy, strategist at Kimelman & Baird, says many investors consider railroads a natural resource play since they own so much land, but inflation has kept prices down. (181K WAV) or (181K AIFF)
Some strategists see the 2,500 mark as a resistance level, saying the index will now take a pause to refresh. Still others see airline stocks continuing their upward move, leading transports up another 100 points.
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