Tall Tales and Transports

“The Transports are rallying, hitting new all-time highs. That’s extremely bullish for the broad market.” – Pundit

One of the tallest of tall tales in markets is the myth of all-powerful Transports. When Transportation stocks are hitting new highs, as they are today, all is said to be well in the world. Investors can safely buy the broad market with an expectation of nothing but blue skies ahead.

Image of Dow Jones Transportation Average in 2017

Back in July 2011, we heard the same fable from a renowned pundit. Transports were hitting new highs with the S&P 500 still below its peak in April. “Bullish,” he said.

What followed? A sharp sell-off and 20% decline until a bottom was hit in October.

Image of Dow Jones Transportation index in 2011

I can still recall the days in early June 2008 when the Transports rallied to hit new highs. “The Bear Market is over,” I remember one so-called “Technician” declare without an ounce of reservation.

What followed? The worst declines since the Great Depression, in a bear market that took the S&P 500 down 57% before bottoming in March 2009.

Image of Dow Jones Transportation index from 2007 to 2009

This should not have come as a surprise. Indeed, we had seen this movie before. In January 2001, the Transports hit a new all-time high, leading many to say that the broad market declines which began in March 2000 were over.

What followed?

The sharpest losses bear market that took the S&P 500 down 51% before bottoming in October 2002.

Image of Dow Jones Transportation index from 2000 to 2002

Should we conclude from these examples that Transports hitting new all-time highs without the S&P 500 is actually a bad thing? No, certainly not. The average forward returns from this scenario, while slightly below average, are still positive.

S&P 500 average forward retuns from 1970 to 2017

What we can say, though, is there’s nothing in the data to suggest that Transports hitting new highs are an unusually bullish signal. And as we saw in 2001, 2008, and 2011, there’s nothing to suggest that sharp declines can be ruled out when Transports are strong. To the contrary, the last 3 bear markets all saw Transports hitting new all-time highs just prior to the steepest losses.


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This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.



Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

You can follow Charlie on twitter here.


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