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In our Commentary last week, we noted that Delta shares were down over ten percent due to their weak economic outlook. Per our Commentary- “Delta’s CEO offered similar caution: The outlook has been impacted by the recent reduction in consumer and corporate confidence caused by increased macro uncertainty, driving softness in Domestic demand. He also noted that Federal air bookings are off by about 50%.” Delta is just one of many transportation stocks that are significantly underperforming the market. We bring this up because the earnings for the transportation sector tend to be closely tied to economic activity. In fact, the long-held Dow Theory warns that all stocks are at risk when transportation stocks underperform the Dow Jones Industrial Average. Our economy is much more service-oriented than when the Dow Theory originated, but transportation stocks can still provide insight into the economy.

We share a SimpleVisor table below alongside a graph to stress the weakness in transportation stocks. The graph on the right shows that transportation stocks are down 20% from their November highs, while the S&P 500 is only down 10% from its more recent February record highs. The underperformance is much more stark when comparing the performance over the last three years.The SimpleVisor table on the left shows that transportation stocks are the most oversold sector on an absolute and relative (versus S&P 500) basis. This has been the case for the last two months.

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Market Trading Update

Yesterday, we noted the similarities between market volatility in Trump’s first and second terms. Interestingly, even though tariffs did not lead to an economic recession during his first term, the mainstream media believes it is different this time. Such has also, a bit unsurprisingly, led to a resurgence, once again, about the demise of the dollar due to its recent decline.

However, as we noted earlier this year, a correction was likely in both stock prices and the dollar due to the overbought and overly bullish market conditions. All that was required was the proper narrative to shift buyers into sellers. When it comes to the dollar, there was a massive flow into the U.S. dollar starting in October 2024. Those foreign inflows into the U.S. dollar fueled the rise in U.S. equity prices and other dollar reserve assets likey Treasury bonds and gold. During that period, the dollar bears faded into oblivion, but now, with the recent decline, they are back.

However, the dollar is now as oversold as we have seen it previously. Such has been an excellent setup for a counter-trend rally into the dollar. The reality is that the dollar-reserve status has not changed, there is no dollar funding crisis, and the ebbs and flows in the dollar, like everything, are simply due to changes in supply and demand. The current decline in the dollar is extracting capital out of U.S. markets and fueling a speculative rise in International markets. From a trading perspective, I would consider selling international stocks and buying domestic equities for a dollar rally later this year.

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Good CPI And PPI Data May Not Continue With PCE

Last month, despite higher than expected CPI and PPI data, PCE prices were tame. This was widely expected as the subset of prices from PPI that feeds PCE prices were lower than expected. This month, however, despite lower-than-expected CPI and PPI, Core PCE forecasts are inching upward. Per the Wall Street Journal table below, estimates for PCE prices have risen by around 0.34% in February. A reading of 0.34% would raise the year-over-year gauge a tenth of a percent higher to around 2.75%.

PCE prices are the Fed’s preferred gauge of inflation. Therefore, any comments on inflation from Jerome Powell or in the FOMC statement could be interesting. Furthermore, the will release its quarterly economic projections on inflation, jobs, and Fed Funds expectations. Will the PCE estimates impact their forecasts?

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