Transportation stocks and other "old economy" sectors are experiencing a comeback, recently outperforming flashy tech stocks that have dominated markets in recent years.
Bloomberg reported that the Dow Jones Transportation Average (which tracks companies like FedEx, United Airlines, and Dominion Freight Line) has surged ahead of the S&P 500 Index by 13 percentage points over the past month and a half, marking near-record outperformance not seen since the financial crisis.
This rally represents a shift away from artificial intelligence stocks, driven by investor concerns over AI disruption and tech giants' massive capital spending plans as they scale the industry (for example, by building massive data centers to support AI). The "old economy" appeal is growing as investors are looking to diversify and make safer bets.
Manufacturing data was also a factor. A report from the Institute for Supply Management showed that manufacturing activity expanded in January at the fastest pace since 2022, suggesting parts of the economy may be regaining momentum. A stronger-than-expected jobs report piled on more confidence that the labor market is stabilizing.
"The sector is one of the most economically sensitive, as higher activity levels correspond with items needing to move around both the country (and the world)," said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute.
"The direct is obviously if there's increased demand for manufacturing, that definitionally would increase the need for transportation," added Mark Hackett, chief market strategist at Nationwide.
Investors are often excited by the most innovative and latest industries, with the market reflecting the buzz, such as crypto exchange Coinbase seeing stocks surge and Tesla's stock gaining momentum due to its AI potential.
But transportation is increasingly being viewed as part of an "AI-resistant" trade — industries whose core functions, such as moving goods by truck, rail, air, or cargo ship, cannot easily be replaced by automation.
For consumers, a healthier transportation and manufacturing sector can translate to broader economic stability, influencing job growth and supply chains. Transportation also plays a role in the transition to cleaner energy. Investors interested in clean economy stocks can look for exposure to electric vehicles and related green tech, such as sustainable aviation fuel.
Despite the boom, not all analysts are convinced. Citigroup's Ariel Rosa downgraded several trucking companies; meanwhile, Leuthold Group's Greg Swenson described airlines, railroads, and cargo as a "mixed bag."
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Still, Christopher Kuhn, a Benchmark analyst covering trucking stocks, believes the rally has room to run. "You just get a little bit of revenue growth, a little bit of volume growth and a little bit of pricing growth and you could see some pretty big incremental margins drop to the bottom line."
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