as part of our
Start by looking at the Dow Transportation Index if you want to
know where stocks may be headed in 2013, says Bill DeShurko,
investment manager on the Covestor platform.
"Where the transports go, U.S. stocks are likely to follow,"
says DeShurko of
, who manages the Dividend and Income Plus investment model. "They
are a measure of the U.S. economic lifeblood. Keep in mind, the
U.S. is still the big dog globally. So I suspect that transports
will be a leading market indicator."
As Josh Brown points out, analysts and investment managers have
come to recognize that the economically sensitive Dow
Transportation Index Fund (
) won't lead the market this year. In the third quarter of 2012,
industrial stocks (indicated by the red line above) began making a
series of lower highs while the Dow Industrials (in black) began a
climb to a nearly five-year high. That happened despite poor
economic data from China and Europe.
Yet the weak transports should not have been ignored, DeShurko
says. The group was flashing a warning that the Dow Industrials
were about to take a 1,000 point tumble in October and November, he
A mix of exogenous fundamental factors may have pushed the
industrials higher while economically sensitive transports were
mainly moving sideways in the third quarter. According to
DeShurko, those included:
- Market euphoria over ECB President Mario Draghi's statement
that the European Central Bank was prepared to do "whatever it
takes" to preserve the euro currency.
- Expectations that the market would see a Q3 rally in line with
past U.S. election cycles
- Expectations in Q3 that the fiscal cliff would be solved
following the presidential election and before the end of the year,
to avoid automatic spending cuts and tax increases.
- Anticipation that the release of Apple's fifth-generation
iPhone could help provide a third-quarter lift for U.S.
Going forward, though, DeShurko believes that economic
expectations will be the strongest influence on market direction.
And the good news, he says, is that the economy may indeed continue
to strengthen - but not with its own propeller. "I think that
globally the picture is going to improve, with the data from China
and Europe becoming a little more solid. Even if we hit a soft
patch in the U.S., I think that the rest of the world will pick up,
and that could help keep us afloat for the year."
"I'm watching the MSCI All Country Asia ex Japan Index Fund
for a potential breakout to year highs," DeShurko says. "That could
be a signal that investors are going to give a much harder look at
economies with faster growth than the U.S. in 2013."
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