The One Market Sector That’s Consistently Outperforming the Rest

The One Market Sector That’s Consistently Outperforming the Rest image 110713 PC clarkThe One Market Sector That’s Consistently Outperforming the RestThe Dow Jones Transportation Average has been powering ahead since the last week of June. It’s risen five percent since, and the percentage gains on up days are handily beating other stock market indices. That’s a very powerful signal indicating the appetite that institutional investors have to be buyers.

Powering the Dow Jones Transportation Average has been FedEx Corporation (FDX), which has been the subject of activist investor rumors, and Alaska Air Group, Inc. (ALK), which announced an 8.1% gain in revenue passenger miles in June and an 8.6% gain in capacity. It has been a very strong performance for an airline, and it’s been a major stock market winner.

Also helping are surprising earnings results. Bassett Furniture Industries, Incorporated (BSET) has 89 company- and licensee-owned mid-priced home furniture stores. According to the company, second-quarter sales grew a solid 20% to $81.2 million, marking the third consecutive quarter of 20% growth or better. The company cited an improvement in customer spending and increased market share.

In large-caps, stock market leadership within the Dow Jones Industrials over the last two weeks has been coming from The Walt Disney Company (DIS), 3M Company (MMM), The Home Depot, Inc. (HD), United Technologies Corporation (UTX), and Johnson & Johnson (JNJ).

Without question, I firmly believe that blue chips (including several Dow Jones components) remain the best place to be. The prospects for rising dividends remain strong, and so is the probability that earnings will meet expectations, especially in the Dow Jones components.

The broader stock market is displaying incredible resilience and there is a genuine optimism in the trading action among many big investors.

Blue-chip leadership since the beginning of the year is pronounced with the Dow Jones Industrial Average outperforming the S&P 500 and the NASDAQ Composite. And that doesn’t include dividends or the downside outperformance either. It’s very much a stock market that is sticking with the safest names.

It’s also a stock market that can push much higher, since Wall Street analysts only expect S&P 500 companies to grow their earnings by 2.9% in the second quarter, according to Thomson Reuters. That modest expectation, if beaten, could result in substantial buying on the part of institutional investors having been caught in a marketplace where expectations are too low. (See “The Few Sectors That Will Continue to Gain in This Unpredictable Market.”)

Although the stock market has gone up substantially over the last couple of years, corporations have been very conservative with their earnings forecasts. There is a little stock market momentum right now, but we know some companies will beat the Street.

In terms of the Dow Jones Transportation Average, it underperformed the Dow Jones Industrial Average in 2012, but has beaten the industrials so far this year. This breakout of transportation companies on the stock market is, of course, a classic bullish signal.

But it’s up to companies and their earnings results to carry equities. The stock market can go higher still if companies perform the way their stocks indicate.

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