Transportation Stock Dip May Signify Recession Fears Are Coming True

On April 20, The Wall Street Journal detailed the performance of stocks deemed economically sensitive, such as those within the transportation sector, against the broader market as harbingers of an oncoming recession. The article notes that the Dow Jones Transportation Average, which follows the 20 largest businesses in the sector, has trailed the Dow’s Industrial Average by around 7% since February.

Transportation market performance is often seen as an indicator of the broader economic landscape, as these stocks are typically sold quickly during a downturn when demand drops. Conversely, their rally is also seen as an early signal of economic rebound.

If pullback and the related sentiment was limited to one sector, the signal could be easy to overlook. However, these developments come in the midst of larger recession concerns, as noted in the PYMNTS collaboration with Enigma, “Main Street Health Q1 2023.”

Fifty-nine percent of surveyed Main Street SMBs overall expect the economy to enter into a recession over the next 12 months, with the highest sector sharing that sentiment being retail. Although the segments are separate, they share a common economic concern — and there are other hints at an economic contraction on the horizon.

For example, some small merchants, also noting a drop in consumer demand, have switched to cost-cutting through modernizing certain back-end systems rather than continue to raise prices. C-suite executives are voicing these concerns over how a recession may impact their firms’ financial health, with the majority not believing stronger economic growth will return anytime soon. Banks are also predicting recessionary pressures. However, in perhaps the most indicative sentiment of continued economic volatility, consumers also increasingly expect a recession in the coming year.

Initially, the transportation sector pullback seemed like the beginnings of a return to economic normal. After all, shipping costs coming down from their pandemic highs would mean lower manufacturing and retail prices — or at least the prices would hold steady, allowing consumer wages to catch up.

Unfortunately, any celebrating at this drop seems to have been premature, as supply chain easing has fallen unevenly. And, if sector performance is indeed an early recession indicator, we may be in for prolonged belt-tightening. Logistics firm Freighto’s earnings noted deep industry changes as growth missed projections significantly.

While no single indicator tells the story, altogether, these signs may signal that there is more belt-tightening to come.