Long Train Runnin’

Story Highlights:

• Investors looking for anecdotal evidence miss some hard data.
• Transports have shown strength this year, belying recession fears.
• Facts—especially the ignored ones—are what have the power to move markets in the long run.
  

___________________________________________________

You could forgive today's economy for having an inferiority complex. Though most data continues to come in better than modest expectations, the economy isn't getting a lot of attention—at least not the good kind. But the facts have always historically overwhelmed sentiment. Today, the question is when?

Hard to tell. So far, the better than expected numbers haven't exactly captivated folks. Maybe it's just that dry economic indicators don't have the immediate power of anecdotal stories. Fair enough. But the first rule of objective economic analysis is that anecdotes are not the antidote for market forecasting. The tangible facts, part of our collective narrative or not, are what matter in the long-run. And plenty are being ignored.

One tangible fact no one's talking about: Transports are thriving. Make no mistake, there's more than one long train runnin' out there. The S&P 500 Railway index is up over 25% this year, and with it, capacity utilization and railway bottlenecks—there simply aren't enough trains to ship America's goods today. This isn't activity consistent with a recession. And it's not just trains. The Dow Transports, which covers the firms that ship goods—via trucks, trains, and even air, is up over 11% this year. Dry numbers like these may not have the immediate power of touchy feely stories, but they are certainly more substantive. "Things sure are tough. Yesterday, I went to fill up my Escalade and there was a prayer meeting at the gas station!" We're not kidding.

Pray at the Pump
By Doug Moore, St. Louis Post-Dispatch

In fact, a meaningful drop in transport indexes has coincided with most US recessions, including the most recent ones in 2000 and 1990.* That transports have historically slumped along with the economy shouldn't be terribly surprising. After all, if no one wants to buy your widget, it's not likely you'll want to pay someone to ship it anywhere.

But today, transports (and the preponderance of economic data and other substantive evidence) continue to suggest the economy is stronger than widely recognized. It can be frustrating to see things so underappreciated—but if you can be patient—it's actually bullish. As sunnier conditions eventually become appreciated, naysayers will become tomorrow's buyers. It's impossible to know exactly when this will happen, but if you've been waiting for things to get better for markets, one thing's for sure: All aboard! You don't want to be left behind when the train leaves the station.

* Bloomberg