Dow transports tumble into first bear market in nearly 3 years
The Dow Jones Transportation Average has entered its first bear market in nearly three years, sending a warning sign to Wall Street that the slowdown in overseas economies may be spilling over into the U.S.
The Dow transports DJT, -3.15% tumbled 297.81 points, or 3.2%, to 9,147.66 on Wednesday, the lowest close since Aug. 25, 2017, with losses accelerating after the Federal Reserve’s decision to raise interest rates. The main culprit was FedEx Corp.’s stock FDX, -12.16% , which plunged 12.2% to account for about half of the index’s loss.
The selloff put the transports tracker 20.9% below its Sept. 14 record close of 11,570.84.
Many on Wall Street define a bear market as a decline of 20% or more on a closing basis from a bull-market peak. The last bear market for the transports started on Dec. 18, 2015 and ended on March 17, 2016.
Many chart watchers keep a close eye on the transportation sector, as they view it has a indicator of global economic growth. The idea being, if transports aren’t delivering what other companies are supplying, weakening demand could trigger a slowdown, even if that weakness is coming from overseas markets.
FedEx’s stock selloff helped support that notion. The package-delivery company said that although the U.S. economy remained “solid,” it cut its full-year profit outlook because global trade has slowed as its Europe business weakened significantly and as China’s economy has slowed due in part to trade disputes.
“U.S. volumes and pricing trends remain encouraging but are not enough to offset the international headwinds facing the company,” analyst Helane Becker at Cowen wrote in a note to clients. “Indeed, management expects international to continue to deteriorate through at least the current quarter.”
Don’t miss: FedEx slashes profit targets, will offer buyouts.
See also: FedEx CEO: It’s ‘fantastical’ to think Amazon Air is a threat.
To hammer home the point, the stock’s one-day percentage drop of 12.2% was the biggest since it plummeted 14.5% on Dec. 9, 2008, in the midst of the financial crisis.
There’s still a glimmer of hope, however. Although the Dow Jones Industrial Average DJIA, -1.49% dropped 351.98 points, or 1.5%, to a 13-month closing low of 23,323.66, it was still only 13.1% below its Oct. 3 record close of 26,828.39. It would have to fall another 8% to fall below the bear-market threshold of 21,462.71.
And the last time the Dow transports was in a bear market, it fell as much as 28% peak to trough, while the Dow industrials only declined 14.5% before bottoming.
For the other major market barometers, the S&P 500 index SPX, -1.54% closed Wednesday 14.5% below its record, while the Nasdaq Composite Index COMP, -2.17% has shed 18.2%.
Elsewhere, the Russell 2000 Index RUT, -2.03% of small-capitalization stocks entered a bear market on Monday, and closed Wednesday 22.5% below its Aug. 31 record of 1,740.75.
The S&P 400 Mid Cap Index MID, -1.71% has lost 18.8% from its August peak and the Dow Jones U.S. Total Stock Market Index DWCF, -1.57% has declined 15.4% from its September high.
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