Much like other traditional old economy cyclical sectors, transportation has spent several years in a slumber as stocks benefiting from the AI cycle captured all the attention. That dynamic now appears to be shifting, with transportation stocks showing signs of renewed participation.
Railroads were particularly notable this week after closing at a fresh record high after a prolonged consolidation.
We think this is important because railroads are effectively the circulatory system of the U.S. real economy. They move low-value-per-pound bulk commodities and heavy industrial inputs at the lowest marginal cost per ton-mile of any land transport mode.
When we looked at recent rail traffic data, we noticed that several groups, such as Nonmetallic Minerals, Metallic Ores and Metals, Petroleum and Petroleum Products, were showing year-over-year gains, aligning with relative strength trends in sectors and industries that have been outperforming for the last few months.
A long-term chart (monthly data) shows the railroad sub-industry is currently experiencing the second-longest consolidation on record. Notably, its prior breakout from an extended base in 2003 marked the start of a value-led equity cycle.
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