The S&P 500 is trading at another new all-time high today and one development that has a lot of technicians excited is that the Dow Transports is also poised to close at a new all-time high as well. For many market watchers, the new high in the Transports helps to serve as confirmation of the rally in the overall market. For these investors, the emphasis on the Transports stems from the fact that companies in this index were always involved in moving goods from point A to point B, and therefore, these stocks would be the first to reflect strength or weakness in the broader economy. With the Transports on pace to close at an all-time high for the first time in over a year today, the strength helps to serve as confirmation of the broader market rally.
While transportation stocks are still heavily involved in the moving of goods across and into and out of the United States, the US economy of the 21st century is not the same economy of the 20th century. Economic activity today is much more service and digitally-oriented than manufactured and goods oriented. Because of the shift, the importance of the transports as a leading indicator of the economy has lost some of its relevance. We have contended for some time that the ‘transports’ of today’s 21st-century economy are the semiconductors as they are embedded in just about every aspect of our lives from computers to cellphones and even toilets!.
Whether you look to the semis or the transports as a market leader, today it doesn’t really matter. That’s because just as the Dow Transports hit a new high this morning, so too did the Philadelphia Semiconductor Index (SOX). Today’s rally for the SOX only made a marginal new high, but with the index at all-time highs and sitting on a 51% YTD gain, they don’t seem to be anticipating anything much in the way of a slowdown. Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.