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Cass Freight Index a Stock Market Return Predictor?

Posted in Economic Indicators

The monthly Cass Freight Index is a "measure of North American freight volumes and expenditures. ...Data within the Index includes all domestic freight modes and is derived from $25 billion in freight transactions processed by Cass annually on behalf of its client base of hundreds of large shippers. These companies represent a broad sampling of industries including consumer packaged goods, food, automotive, chemical, OEM, retail and heavy equipment. ...Volumes represent the month in which transactions are processed by Cass, not necessarily the month when the corresponding shipments took place. The January 1990 base point is 1.00. ...Each month's volumes are adjusted to provide an average 21-day work month. Adjustments also are made to compensate for business additions/deletions to the volume figures." Cass typically publishes the index level for a month by the middle of the following month. Does this index usefully anticipate economic trend and thereby U.S. stock market returns? To investigate, we relate index changes to SPDR S&P 500 (SPY) returns. Using monthly Cass Freight Index levels and monthly/daily dividend-adjusted SPY returns during January 1999 (limited by the freight index) through mid-August 2018, we find that:

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