These three sectors are leading indicators for the stock market as well the economy.
Semiconductors are often the first step in the supply chain for the tech world. You are going to need chips in order to build anything tech-related, and demand for chips and chip stocks is evidence to us of future demand for technology. A slowdown in chipmaker demand has implications for the modern-day economy.
The Small-cap index has been a great leading indicator for the stock market in both directions. Smaller size companies usually do not have strong pricing power and are very susceptible to the economic cycle. Smaller cap companies also do not have strong balance sheets, strong free cash flow, and low debt levels. Many of the small caps only make money when the market is in an upcycle.
The transportation index is another indicator of economic growth. A swing lower in the transportation index typically reflects slowing demand for freight and logistics services and signals an economic slowdown. As our technology develops, a larger part of our economy has been shifted from spending on goods to spending on services and virtual items. Nevertheless, the transportation index is still a good gauge of the overall economy.
Source: iSquare Intelligence
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