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Thursday, February 17th, 2011
gas in the tank

Before I left for a short break, there was a minor degree of concern in the financial blogosphere over the lack of participation of the transportation stocks in the ongoing rally on world markets.  Now those stocks have joined the party, perhaps thanks to the recent slide in oil prices.

My research in the field indicated that the highways are busy and the airways are busy, despite the general rise in fuel prices.  I was assured by a noted economist that as long as availability is not an issue, the economy should not be hamstrung by energy prices any time soon.

But you wonder at what point there will be a divergence (one way or the other) in the two series above.  I looked at the history of the correlation between them (using rolling half-year periods), and for many years the correlation cycled with regularity from highly positive to highly negative and back again.  Not since the financial crisis.  The correlation hasn’t been negative at all and has been strongly positive most of the time.

The real gas in the tank is coming from the Fed.  In a risk-on world, oil and transportation stocks have both done well.  We’ll see how long the trip lasts.  (Chart:  Bloomberg terminal.)