Keep On Truckin\'

Ford Motor Company, via Reuters

The connection may sound obscure, but as David Bowers of Absolute Strategy Research in London notes, there is a surprising correlation between the pace of truck sales and the ability of stocks to outperform bonds.

As he writes in a new report, purchases of heavy trucks “have proved to be a good lead indicator of overall capital expenditure.” That, in turn, is good for stocks, as rising spending by companies lifts corporate earnings over all.

Source: ASR Ltd./Thomson Reuters Datastream Left scale shows year-over-year change in heavy-truck sales in the Group of 7 countries, on a three-month moving average; right scale shows index of worldwide capital spending intentions.

After rising strongly last year, truck sales have flattened out more recently. That's a sign that big companies remain cautious, despite the recent gains on Wall Street, and aren't increasing spending enough to keep up with rising earnings expectations.

“For the global economy to pick up speed, and for equities to continue to rise against bonds, corporates need to unleash the cash on their balance sheets and start investing,” he writes. In other words, if that doesn't happen, the current stock market rally could be poised to decelerate, too.