The Dow Jones Transportation Average surged the most in more than 11 months Wednesday, led by railroad Kansas City Southern, as growing confidence in the U.S. economic recovery strengthens demand for freight shipments.
Businesses rebuilding inventory are poised to make 2013 “the year of transports,” Peter Nesvold, a New York-based analyst for Jefferies & Co., said Wednesday in a note to clients. He cited recent increases in diesel-fuel consumption, truck-freight tonnage and domestic air cargo.
“It makes sense that an inventory restocking cycle should be positive for freight flows,” Nesvold said in the note. “Nascent signs of inventory restocking so far have been more pronounced in wholesale channels than at the retail level. Even still, we think this rally still has legs.”
The 20-stock transportation index, which includes airlines and truckers, climbed 2.9 percent, the biggest advance since March 15, to an unofficial close at 5989.37. Kansas City Southern jumped 6.2 percent, after gaining as much as 9.7 percent earlier in the day, the most since May 2009.
Trading volume of the Dow transports was far above the 100-day average, according to data compiled by Bloomberg. Dow Theory, a trading strategy used by some investors, says that the transportation index and the Dow Jones Industrial Average must move higher in tandem for equity market rallies to last.
Wednesday’s gains for transportation stocks pushed the index’s year-to-date increase to about 13 percent, compared with about 7 percent for the Dow industrials.
Kansas City Southern rallied after Christopher Ceraso, a Credit Suisse Group AG analyst in New York, wrote that a new oil storage facility in Port Arthur, Texas, could help the carrier handle more petroleum extracted from western Canada.
“We see the opportunity to move heavy Canadian crude to the Gulf as one of the largest growth drivers within KSU’s energy business over the next few years,” Ceraso said in the note. Credit Suisse rates the railroad as outperform.
The Kansas City, Missouri-based railroad operates on tracks in the central U.S. and in Mexico, and it serves petroleum ports along the Gulf of Mexico that include Houston.
J.B. Hunt Transport Services Inc. climbed 5.2 percent to $69.84, after reaching $70.10, its highest price since 1984. Logistics provider C.H. Robinson Worldwide Inc. climbed 2.8 percent.
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