S&P 500 rally reveals warning signs on transport front

While the broader US stock market is showing signs of recovery, a warning light for investors is still flashing as the Dow Jones Transports signals growing concerns about the health of the economy.

Breathing easy after a fall

The S&P 500 gained some weight last week, snapping a four-week slide. That gave investors cause for cautious optimism as the benchmark index began to pare losses after earlier entering a correction phase, falling more than 10% from its February record.

Transportation Sector Stalls

The picture is quite different in the transportation sector: the Dow Jones Transportation Average continued to fall, deepening a downward trend that began with a peak in November. Losses have already exceeded 17% from their record high. The index, which includes airlines, trucking companies, railroads and logistics giants, has come under particularly strong pressure.

Macro-Level Alarm

The decline in the transportation sector points to deeper economic concerns. Among the reasons is the growing uncertainty over the US tariff policy. Investors are uncertain how the Donald Trump administration's trade decisions will affect future growth.

The Federal Reserve added to the negative mood by lowering its economic growth forecast for this year from 2.1% to 1.7%. Fed Chairman Jerome Powell called the current level of uncertainty unusually high.

Key Players Take a Hit

The Dow Jones Transportation Average has lost about 8% since the start of 2025, more than double the S&P 500's decline over the same period. And the decline is broad-based: FedEx shares have already fallen 18%, while UPS shares are down nearly 9%. FedEx took a particularly big hit on Friday, when the company revised its full-year financial guidance downward.

Behind the Scenes of the Recovery: Fragility on the March

While the broader market is showing signs of stabilization, the weakness in the transportation sector is a reminder that the recovery may not be as robust as we'd like. And while trucks, trains, and planes are stalling, investors are keeping a close eye on macroeconomic benchmarks to see where the U.S. economy is really headed.

Down: Carriers and Airlines in a Steep Dive

The transportation sector continues to lose altitude. Shares of ground freight carriers Landstar and JB Hunt Transport Services have both fallen more than 12%. But the hit to airlines has been even tougher, especially given the recent revisions to their financial forecasts. Delta Air Lines and United Airlines have already lost more than 20% since the start of 2025, while American Airlines has fallen by almost a third — minus 35% since the beginning of the year.

Consumer Activity Barometer

The decline in the transportation sector is not just a snapshot of corporate problems, but an important indicator of economic sentiment. As Matt Maley, chief market strategist at Miller Tabak, points out, the Dow Jones Transportation Average reflects activity in the domestic delivery sector, and therefore is directly linked to the level of consumer spending.

"The decline in the index confirms the weakness we are seeing in the macroeconomic data and reinforces the more pessimistic expectations on Wall Street," Maley said.

The Dow Theory: An Unsettling Duo of Indexes

Some investors do not look at the transportation index in isolation — they evaluate it in conjunction with the Dow Jones Industrial Average. This approach is classic Dow Theory, which says that a market is only truly strong when both indexes rise in tandem. But the reality is different.

The Dow Industrials is down 1% since the start of 2025, and about 7% from its December highs. Coupled with the sharp decline in the Transportation Index, this paints a worrying picture — confirmation that the economic recovery is stalling.

The Russell 2000 is also in the red: Small Business Worries

It's not just the Dow Transports that are showing weakness. The Russell 2000 Index, which tracks the smaller U.S. companies that are most sensitive to the health of the domestic economy, is also in deep decline. It's down more than 15% from its annual peak since November.

This signal is especially important: Small businesses are among the first to feel the effects of an economic slowdown. When they suffer, it's a sure sign that the economic engine is losing power.

Semiconductor Slump: Chips Under Pressure

There are new warning signs in the tech sector. The Philadelphia SE semiconductor index has fallen more than 22% from its July peak. And it is the chips that underpin a wide range of modern products, from smartphones to cars. Therefore, the reaction of chip makers is often perceived as a leading indicator of the overall state of the economy.

Waiting for fresh data: the week in focus for analysts

The coming days promise to be eventful for market participants. Several important reports should clarify the current state of affairs in the US economy. Among them are updated indices of consumer sentiment and confidence, which will show how sustainable American optimism is against the backdrop of market turbulence.

Particular attention will be focused on March 28, when a key inflation indicator, the consumer expenditure index (PCE), will be released. Its publication can seriously affect interest rate expectations and the trajectory of monetary policy.

Tariff Jitters: The Countdown Has Begun

Investors are still keeping an eye on the trade agenda. The Trump administration has announced a new round of retaliatory tariffs that could come into effect as early as April 2. These measures are being positioned as an attempt to level the playing field in global trade.

But markets could be volatile until then. Stocks linked to global supply chains are particularly sensitive to such changes. According to Rick Meckler, a partner at Cherry Lane Investments, it is the transport sector that will remain the most volatile during this period of uncertainty.

Europe on the Rise: Copper and Stimulus Provide a Boost

While U.S. markets struggle with mixed signals, European stock markets are showing cautious gains. On Monday, the pan-European STOXX 600 index gained 0.6% by morning GMT, helped by a rise in mining shares — the SXPP sub-index rose 2.6%, helped by a jump in copper prices.

Investors are betting on commodities

The interest in mining companies was also supported by analytics: JPMorgan twice raised its rating on the sector - from underweight to above average. This move confirmed that investors are viewing commodity companies as a possible refuge in the unstable global economy.

Germany opens its wallet

An additional boost to European indices was given by Berlin's move: the German authorities approved a large-scale expansion of borrowing aimed at stimulating growth in Europe's largest economy. This decision strengthened the confidence of the markets that the eurozone is ready to actively fight the economic slowdown.

Trade passions: investors on a low start

Financial markets are holding their breath in anticipation of specifics from the White House. Donald Trump promised to introduce a new package of retaliatory trade tariffs on April 2, and now Wall Street is tensely watching the developments. Investors are trying to understand how these steps will affect global supply chains and how deeply they can hit corporate profits.

PMI under the microscope: Europe lays its cards on the table

While trade issues remain in the spotlight, an important block of macroeconomic data is looming on the horizon. On Monday, preliminary business activity indices (PMI) will be released in France, Germany and the eurozone as a whole. These figures will give an idea of how resilient European business is in the face of growing external risks.

PMIs are traditionally considered a barometer of economic health, especially in the manufacturing sector, which is particularly sensitive to changes in global demand.

A blow to Bayer: a loud court verdict

Meanwhile, one of the largest European concerns, Bayer, found itself at the epicenter of a stormy scandal. The company's shares fell sharply by 6.6% after the decision of an American jury, which ordered the concern to pay a colossal $2.1 billion in a lawsuit related to the popular herbicide Roundup.

The plaintiff claimed that the use of the drug caused the development of cancer. The decision is the latest in a series of difficult legal battles that Bayer has faced since acquiring Monsanto, the maker of a controversial herbicide.