Despite indications that housing might be picking up in the United States, industrials ended the week sharply down while markets were overall flat. Reports of weak manufacturing activity and concerns over the state of international trade caused the capital goods and transportation sectors to significantly underperform broad indices such as the Dow Jones Industrial Average.
The announcement of a new round of quantitative easing, an academic term for printing money to buy debt in order to bring down long-term borrowing costs, triggered a temporarily rally in most stocks last week, but industrials gave up those gains and more on a few gloomy pieces of information.
Bad news from regional Feds
First, last week the Federal Reserve banks of New York and Philadelphia both issued reports showing that manufacturing activity in their respective regions was down, continuing a national trend. This is a general symptom of overall weak economic growth in developed economies, and as a result heavy-equipment makers that operate in developed markets, such as Terex
Companies with high expectations typically take the biggest hits from harsh doses of reality, and Westport Innovations
Even though oil prices reached a six-week low, transportation companies saw declines this week because of deteriorating trade volumes. Transporters got a one-two punch as global package shipper FedEx
Norfolk Southern seemed to confirm this gloomy pronouncement by advising investors that its own earnings would come in below analyst estimates because of low volume. All Class I railroads have been under pressure because of declining coal volumes over recent years, but Norfolk Southern's announcement spooked investors and sent shares down nearly 13% for the week, the industry's most drastic decline. Other railroads and shippers weren't far behind, however, as investors surmised that other freight movers would be suspect to the same pressure. Railroads are facing a number of intriguing opportunities and challenges, however, and a thorough analysis can be found here.
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