Either the Dow Transports or the Baltic Dry index isn’t telling the truth

What’s up with transportation stocks? Or, really, what’s “down” with them?

Even as new all-time highs have been registered by broad-market U.S. indices such as the Dow Jones Industrial Average DJIA, +0.90% and the S&P 500 index SPX, +0.46% the market’s transportation sector has lagged. The Dow Jones Transportation Average DJT, +2.38% for example, is more than 6% below its April high, and more than 10% below its all-time high set in 2018.

Read: The S&P 500 just hit a record high — so did these stocks 

Dow Theorists will immediately recognize the significance of this divergence: it sets up a potentially bearish “non-confirmation” which, if it continues, could turn this oldest of stock market timing systems negative on the major trend. To some, this recent divergence is eerily reminiscent of a similar divergence before the bursting of the internet bubble in early 2000: near the top of that bull market, in March 2000, the Dow Transports hit a then all-time high in May 1999, almost a year before the broad market.

The lagging transports might worry you even if you’re not a follower of the Dow Theory. That’s because the transportation sector is widely considered to be a leading economic indicator, on the basis that this sector will be among the first to signal coming economic weakness.

As I’ve pointed out before, there is empirical support for this theory. According to research conducted by the Bureau of Transportation Statistics of the U.S. Department of Transportation, declines in the sector have, at least over the last three decades, led economic slowdowns by an average of four to five months.

This is certainly enough reason to sit up and take notice. This backdrop provides context for the extraordinary rally of the Baltic Dry Index, which reflects the cost of moving raw

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