A quick look at a timely topic of interest - with a brief review of why it could matter to investors.

Chart of the Week
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August 4, 2014

By land or sea: what shipping says about growth
DOT Freight Transportation Services Index and S&P 500

chart

Source: Bloomberg, as of 7/28/14. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The bottom line:

  • The Federal Reserve's accommodative monetary policy is often cited as the main driver behind the upward trend in equities most of this year.
  • The Fed itself has been clear that helping to support the prices of financial assets is a policy goal.
  • Yet there's also evidence that economic fundamentals are also part of the equation. The Department of Transportation Freight Services Index—which measures actual shipments by truck, rail, waterways, pipelines and aircraft—has far surpassed pre-recession levels reached a new all-time high in May 2014 (latest data available).
  • While the US economy is not yet firing on all cylinders, more shipping volume clearly implies more demand for goods, and greater confidence among businesses and consumers.
  • The stock market could be reacting to this as much as to the record low price of short-term money set by the Fed.
  • Last week's sell-off demonstrates that there remains ample anxiety about the direction of the economy. Whether you see the market as fairly priced or a bit pricey, many believe there are still opportunities to exploit mispricing at the individual security level—a task well suited for bottom-up active equity managers.

The chart:

  • The chart shows the Department of Transportation's (DOT) Freight Transportation Services Index (TSI) and the S&P 500 from July 31, 2004 through July 28,2014.
  • The latest available data point for the DOT Freight TSI is May 2014; the latest S&P 500 price shown is as of July 28, 2014.
  • Note the dips in the Freight TSI in the summer/fall of 2012 and winter of 2013—both preceded notable dips in the rate of GDP growth, 0.1% in 4Q12 and -2.9% in 1Q14.

Context & Perspective:

  • The Freight TSI reached a new all-time high level of 120 in May 2014, exceeding the previous high of 119.4 in November 2013.
  • The April index was revised up to 119.3 from 117.6 in last month's release and previous monthly numbers were also revised higher, possibly suggesting some momentum in the economy or at least a notable rebound from the winter slowdown.
  • The Freight TSI is up 27% from its recession low in April 2009.
  • The Freight TSI declined by 2.9% between June 2012 and October 2012 prior to GDP slowing to an annualized pace of just 0.1% in 4Q12; it also declined by 2.9% between November 2013 and January 2014 prior to GDP growth contracting at a 2.9% annualized pace.
  • The June TSI report is scheduled for release August 13, 2014.

Definitions:

The Federal Reserve Board ("Fed") is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges.

The Department of Transportation (DOT) Freight Transportation Services Index (TSI) measures the month-to-month changes in freight shipments by mode of transportation in tons and ton-miles, which are combined into one index. The index measures the output of the for-hire freight transportation industry and consists of data from for-hire trucking, rail, inland waterways, pipelines and air freight. The index is seasonally-adjusted and measures changes from the monthly average of the base year of 2000.

Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges.


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Poll

Which Asian country will have the strongest growth in the coming year?








Poll

Which Asian country will have the strongest growth in the coming year?

Japan, as Shinzo Abe's policy initiatives take hold
(19%)
India, as Narendra Modi's new government enacts changes
(38%)
China, as Xi Jinping's reforms promote a stronger financial sector
(19%)
South Korea, as President Park Geun-hye's plan to boost growth bears fruit
(24%)



Previous month Poll

Go for growth: Where will a global recovery be strongest this year?

Europe, as countries emerge from bailouts
(43%)
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(40%)
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(7%)
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