(Bloomberg) -- Cantor Fitzgerald LP is recommending bearish trades on the U.S. transportation sector amid a deteriorating global trade landscape and worsening economic numbers.
Data have been bad across all sectors of transport -- rail, truck and air -- in recent months, and a gauge tracking the group “is indicating a pronounced slowdown into the end of the year,” Peter Cecchini, Cantor’s chief market strategist, wrote in a note Sept. 25. Among the evidence of trouble was FedEx Corp (NYSE:FDX).’s recent cut to its outlook, he wrote.
“We think it wise to initiate short positions in select transportation names, or in the IYT ETF,” Cecchini said. “U.S. transportation data has been rapidly deteriorating. While some of this slowdown is due to trade, much of it is also due to structural issues in China, Japan and Europe. We expect U.S. and non-U.S. data to continue to deteriorate.”
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While the U.S. economy has been holding up, cracks have appeared in areas like consumer confidence and the labor market. German data indicate the country is close to a recession. And China’s growth has continued to weaken.
American stocks have stayed strong in the face of headwinds. The S&P 500 Index is up 19% year-to-date and the Dow Jones Transportation Average is up 14%. Cecchini has a year-end target for the S&P 500 of 2,500, or a drop of 16% from Wednesday’s close -- making him the most bearish among Wall Street strategists tracked by Bloomberg,
Cecchini suggests a trade buying November $181 put options on the iShares Transportation Average exchange-traded fund, and selling one-and-a-half times as many $170 puts. The ETF, ticker IYT, tracks the Dow Jones Transportation Average and closed Wednesday at $187.51.
