Research Library
Below is our research library, listed in reverse chronological order. Please use the search box to look for research on a specific company or topic, or use the Calendar, Archives, or Sector links at left to browse for research from a specific time period or sector. If you are a Wolfe Trahan client and can not access any of the links in our library, please contact to request our PDF decryption plug-in.Audio Brief: Third-Quarter Shipper Survey Results
This 10-minute audio brief includes 13 slides and highlights the key takeaways from our State of the Freight: Third-Quarter Shipper Survey report. Key topics discussed include pricing, volume, service and capacity trends across all modes of freight transportation. We also consider inventory restocking trends and how they are currently driving reported freight volumes to feel much stronger than the broader economy. Moreover, we discuss the emergence of a clear dichotomy between TL capacity and pricing compared with LTL, along with accelerating rail, truckload and intermodal pricing expectations from shippers, but decelerating expectations for express/parcel, international heavy airfreight and international ocean rate increases.
State of the Freight: Third Quarter
This 70-page report analyzes the responses from nearly 150 traffic managers that filled out our third-quarter survey during July and early August. Within the report, we discuss in detail: pricing, volume, service and capacity trends across all modes of freight transportation. The report looks at inventory restocking trends and how they are currently driving reported freight volumes to feel much stronger than the broader economy. Our report also reveals a clear dichotomy between TL capacity and pricing compared with LTL. Moreover, our survey points to accelerating rail, truckload and intermodal pricing expectations from shippers, but decelerating expectations for express/parcel, international heavy airfreight and international ocean rate increases.
The Hunt For Growth Is About To Become More Difficult
Is it us or did Chairman Bernanke finally admit that the tools left in his arsenal are limited and that they will need to be used in conjunction with other policies (i.e. fiscal)? As we see it, this is the first acknowledgement by a senior Fed official that the backdrop and effectiveness of their policy tools are a little different than in recent decades. It seems they are beginning to recognize that deleveraging is the kryptonite of monetary policy. This would have been so simple ten years ago. Greenspan would have slashed rates and the markets would likely be off to new highs as consumers leveraged themselves yet again. We suppose the first step here is acknowledging there is a problem and the Fed just crossed it last week … about four months after the markets did.
If the decline in leading indicators holds, and GDP slows from here, then there will be less and less of an appetite for equities and probably more and more for bonds. While the 10-year yield is very low by “historical standards”, there are not a whole lot of comparable episodes of deflation or deleveraging, so in our minds there is still downside to bond yields … even from 2.60%. While the Fed now “gets it”, the chart above shows that most of the sell-side still does not. Analysts have just begun to revise long-term expectations for stocks (some at least) lower, but given how much P/Es have fallen, we should expect to see their expectations melt over the next few quarters. A more difficult Q3 earnings season could be the catalyst for a significant downdraft in analysts’ earnings expectations.
Today’s headline article in the Money and Investing sector of the Wall Street Journal attempts to explain why P/Es have fallen. We see three simple reasons: 1) leading indicators are declining; 2) deflation is near; and 3) economic growth is likely to be below trend for several years. Keep a close eye on this Wednesday’s August ISM release as it is likely to be the biggest market mover this week. We believe it is more important than Friday’s payroll figures as the ISM is forward-looking while jobs data is backward-looking. Another slip in the ISM would likely weigh on equities again … something most of our tools are forecasting. Stay tuned.
3Q:10 Truck Equipment Survey: Capex Plans Stronger But Demand Fundamentals Suggest Slow Cycle
In recent weeks we surveyed 52 US truck fleets about equipment issues. The results include tighter truck capacity and higher capex plans since 1Q:10. However, we still see an underutilized fleet by mileage and respondents are keeping trade cycles elevated by increasing equipment remanufacturing, suggesting a slower grind up.
Friday Freight
This weekly report summarizes the most recent views and research of Wolfe Trahan. Included are (1) three to five snippets or key takeaways from our team’s recent channel checks with traffic managers about their experiences with purchasing, competition, and service from Airfreight and Logistics, Rail, and Truck capacity providers; (2) notices of upcoming industry events; (3) key takeaways from some of our notes from the past week; (4) recent stock performance for our transport universe; (5) updated comparison tables for the airfreight and logistics group, railroads, and trucking; and (6) fuel trends for West Texas Crude Oil, On-highway diesel, Rail diesel, and Jet fuel.
On Track, Week 33 Ending August 21: Rail Volume Growth Holds Steady
Total Week 33 Rail vols increased 14.6% y/y, similar with +14.9% and +14.1% the prior 2 weeks. Overall vols are now tracking up 13.3% QTD more than halfway through 3Q, above our expectations of about 10%-11% growth, although y/y comps get increasingly tough going forward. On a 2-year stacked basis, vols remain down 7% vs. C08 levels.
Is There Hope For Financials As LEIs Continue to Decelerate?
Since the peak in leading indicators in April, the Financial sector has been the biggest underperformer. Truth be told, the dynamics of the Financial sector have evolved and the increasing weight of cyclical industries within the sector has made it subject to changes in economic prospects. One of the primary drivers behind our underweight in Financials has been this high correlation to leading indicators and our belief that we are only in the early innings of a deceleration in economic prospects. Also, our analysis suggests that the influence of macro on the performance of Financial stocks remains just off an all time high (page 2). With our outlook for 2010 favoring stability over cyclicality, we remain cautious on the sector and maintain our underweight on Financials as a whole.
As economic prospects have dimmed, so has the sell-side’s bullishness for Financial sector earnings. Overall sell-side price expectations are still exuberant for the sector as a whole, but the acceleration in upward EPS revisions has significantly pulled in. This is not surprising given the sector’s poor performance of late. While we remain cautious on the group and maintain our underperform rating, sell-side targets for the sector still have a 12-month expected return target of 35%.
What is troubling to us about the future expectations for the Financials sector is that the sector typically does best in an environment where leading indicators are accelerating and we are just past a peak in LEIs. Many still question whether this is a prolonged slowdown or just a temporary blip, but our work on anticipatory indicators of LEIs would argue for a continued decline for several more quarters. However, not all is lost for the Financials sector, as some of the industries which we highlight in today’s report actually offer defensive safe havens for investors.
LSTR: 3Q Mid-Quarter Update
LSTR hosted its scheduled 3Q mid-qtr. update at 2pm ET on Wed., and mgmt lowered the high end of its 3Q EPS range to $0.47-$0.50 vs. prior guidance of $0.47-$0.52 and prior Cons. of $0.51 (and our prior $0.54). LSTR also reduced the high end of its Gross Rev. range, while lower gross yields are expected to be offset by stronger cost control.
History Repeats … Textbook Rotation To Stability Continues
Our initiation piece back in March called for a flat to slightly down market. Indeed, the S&P 500 was trading around 1145 on the day of our conference call (March 10, 2010) and we put forth a year end price target range for the S&P 500 of 1,000 to 1,100. While it does not exactly sound like a controversial call today, the pushback at the time was tremendous. The premise behind this thesis was that leading indicators of the economy would stop rising and begin to decelerate BUT remain in positive territory. Truth be told, we need to re-assess this assumption since there is now evidence that LEIs might indeed be calling for a contraction in growth (see Philly Fed Index released last week). This is typically consistent with a bear market in stocks, not a flat market. Are we too optimistic? Possibly.
The average annualized performance of the S&P 500 past a peak in leading indicators is about 1%. In that context, it makes sense to expect equity returns to flatline past a peak in LEIs. The Philly Fed Index, considered to be one of the most reliable LEIs after the ISM, is now in negative territory. If this is not a fluke, then it will be a game changer for our market outlook as the S&P 500 likely has more downside than our current expectations. Note that we always thought LEIs would eventually go negative, just not in 2010. The Richmond and Dallas Fed indices are up next for release and should shed light on this.
What is troublesome about the Philly Fed already being this weak is that our work on anticipatory measures of LEIs argue for a continued decline for several quarters still. This is extremely problematic if we are already in contraction territory. Regardless, the financial markets are behaving in a fairly textbook manner at this point and we see no reason why this would stop. We continue to prefer Treasuries to equities and, within the stock market, advise clients to emphasize the boring (and most rewarding in recent months) counter-cyclical sectors like Staples, Utilities, etc.
Friday Freight
This weekly report summarizes the most recent views and research of Wolfe Trahan. Included are (1) three to five snippets or key takeaways from our team’s recent channel checks with traffic managers about their experiences with purchasing, competition, and service from Airfreight and Logistics, Rail, and Truck capacity providers; (2) notices of upcoming industry events; (3) key takeaways from some of our notes from the past week; (4) recent stock performance for our transport universe; (5) updated comparison tables for the airfreight and logistics group, railroads, and trucking; and (6) fuel trends for West Texas Crude Oil, On-highway diesel, Rail diesel, and Jet fuel.
