A quick comparison of two Dow Jones indices, which I’ve done before, should tell us whether or not the Fed’s stimulus is trickling down through the market evenly.
This comparison is the Dow Jones Industrial Average (DJIA) versus the Dow Jones Transportation Average (DJTA).
In this environment of Fed-fueled stimulus, the Industrial Average has been strong, making the higher highs and higher lows characteristic of an uptrend. In March of this year, the DJIA broke above its 2011 high. Then, after a pullback in May and early June, the Industrial marched higher… again breaking above its previous peak.
But a look at the Transportation Average tells a different story.
Its 2011 high was 5,627 and, unlike the DJIA, this level has yet to be broken. The Transportation Average’s 2012 high is lower than the 2011 high. And worse still, the current price is well below this year’s peak price.
Simply put: the Industrial Average is strong and the Transportation Average is weak.
One possible explanation: the Fed’s stimulus has done little to lower energy prices – a major cost for transportation companies.
It’s also likely the Transportation Average is signaling the global slowdown we’ve been warnrning about for years now.
Either way – these two market indices should be moving in sync, and they’re not. Be careful.
If you haven’t done so already read the Survive & Prosper issue on “Our Free Market Economic System Works”