This makes no sense. Oil has been on a tear the past couple of weeks, rising greater than 20% over the past three months. As one would expect the Dow Jones Industrial Average has been kept on check due to the higher oil prices. It has risen only by 4% over the same 3-month time frame. The chart below shows the DJIA (in blue) compared to the Oil Service Sector Index (in orange). Yes, the Oil Service Sector does not track the price of oil exactly, but is a good proxy.
Below is a chart showing the DJIT(ransports) (in blue) compared to the Oil Service Sector Index (in orange). Over the 3-month period, the DJIT rose almost 10%.
Source: WSJ.com
Last time I check, the price of oil/gas is a huge expense for these companies. It would seem that the increase would weigh on their bottom line. Has something changed?
I guess not, last Friday FedEx lowered its 4th quarter earnings estimates due to increases in fuel costs. FedEx has been charging customers a surcharge for fuel related expenses, however Chief Financial Officer Alan B. Graf Jr said that these surcharges 'cannot keep pace in the short-term with rapidly rising fuel prices'.
Granted the transportation stocks have responded appropriately to the economic news over the past year, reaching a low of 3,995 back in January. However since that low, the index has risen by 28% to 5,159.
Seems like a good time for a correction in this index.
Source:
'FedEx cuts 4Q profit forecast, blames fuel costs', by Woody Baird, AP
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