LIVE MARKETS-Is the transportation canary singing a song about recession?

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IS THE TRANSPORTATION CANARY SINGING A SONG ABOUT RECESSION?

It's been a tumultuous year for stocks, with uncertainties mounting over the Trump administration's erratic tariff actions and other unpredictable policy decisions shaking investor confidence and raising the possibility of a potential recession instead of the Fed's "soft landing" scenario which seemed within reach last year.

Every asset class has ridden the roller coaster this year, but the Dow Transports .DJT has suffered a worse year than most (housing .HGX and specifically airlines .SPCOMAIR are two exceptions). And the DJT has the dubious distinction of being considered by many to be an economic canary in the coal mine.

"The transportation average is one of the best barometers for future economic activity and there has been a fair amount of uncertainty" as to whether or not we're on the verge of a recession and the possibility that tariffs could "push us over the edge," Chuck Carlson, chief executive officer at Horizon Investment Services, tells Reuters.

"It seems to me the potential tariffs will have a pretty significant impact on transportation companies in general, especially those that are moving product internationally," Carlson adds. "They’re more sensitive to the things that I think investors are most concerned about right now."

While there are only 20 stocks in the index they are widely diverse. It includes airlines, rail carriers, package delivery firms, truckers, logistics, and in the case of recently added Uber Technologies UBER.N, a ride-hailing app.

So in the face of the ongoing tariff kerfuffle, which of these stocks are more at risk?

"When you start dissecting the index, those that directly deal with the consumer are doing better than those that are in shipping, whether it's stuff coming in internationally or from Mexico or Canada, or even within the United States," Carlson says.

All of which begs the question: with the DJT down about 7% so far this year, is this coalmine canary singing a song about an impending economic downturn?

"We're at a pretty good pivot point," Carlson says. "And if in fact the Dow Jones Transportation average tests its April lows, that really ups ante for a potential recession for later this year."

(Stephen Culp)

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