A gradual recovery in oil prices and a steadily-growing economy should boost transportation stocks.
SPDR S&P Transportation ETF (XTN) and Fidelity Select Transportation (FSRFX)
from AlphaProfit Sector Investors’ Newsletter
Investors are interpreting subpar economic data as good news for stocks since it can tip the Federal Reserve to delay raising interest rates beyond this summer. Investor anxiety has eased. The S&P 500 has rallied within 15 points or 0.7% off its March 2 all-time high.
Some of the drop in economic activity can be attributed to one-time or sector-specific factors like the unusually harsh winter or slowdown in energy-related capital investment. As such, it is too early to view recent data as evidence of broad weakness in the economy.
We believe stocks can lose ground if economic data improve rekindling worries of the Fed raising interest rates this summer. The likely decline in first quarter earnings also poses risks for stocks.
We recommend investing 30% to 55% of total investable assets in equities at current stock prices, the specific percentage being dependent on investment objective and risk tolerance. We raise exposure to biotechnology & consumer staples and cut exposure to semiconductors.
We rate the AlphaProfit Sector Portfolio Indicator ‘Buy on Dips’ and suggest raising equity allocation by 10% to the 40% to 65% range if the S&P 500 drops below 1840.
Preferred transportation investments lost ground in March. The SPDR S&P Transportation ETF (XTN) outperformed the S&P 500 while the Fidelity Select Transportation (FSRFX) fund lagged. All transporters benefit from a stronger dollar and the resulting savings on fuel costs. The impact of currency exchange rates on revenue however varies by industry segment or company.
A decline in U. S. coal and shale oil production caused by lower energy prices is a negative for railroad shipments. In the freight space, reduction in U. S. imports from a pricier greenback is a negative for FedEx. United Parcel Service however benefits from larger European exports spurred by a weaker euro.
We believe transportation shares as a group can likely recoup recent losses if oil prices strengthen gradually in response to stronger economic activity.
Sam Subramanian, PhD, AlphaProfit Sector Investors’ Newsletter, www.alphaprofit.com, 281-565-6963, April 2015