A nascent rally in transportation stocks will face a crucial test on Tuesday when parcel carrier FedEx Corp. reports quarterly results that will shed light on the strength of the US economy and consumer. 

After lagging the broader market for most of this year, the Dow Jones Transportation Average has sharply outrun the S&P 500 Index over the past week, gaining over 2% as the benchmark rose just about 0.4%. The turnaround came just as the searing advance in Nvidia Corp. and other tech megacaps stumbled, spurring a rush into the so-called “old-economy” groups like energy, industrials and financials. It also pushed the transport gauge briefly above its 200-day moving average, a long-term trend indicator that traders keenly watch.

“We’ve seen some violent rotations in the transports this year, with truckers and airlines getting hit sharply on the first sign of earnings weakness,” said Dave Lutz, head of ETFs at JonesTrading. Given the recent slowdown seen in some economic data, “investors will be very keyed into any insights FedEx has on the economic trends,” he added.

FedEx’s results are something of an economic bellwether because its business holds clues about the health of the US consumer and industrial manufacturers. The company’s shares have trailed the broader market this year, but advanced rapidly in the past week. The stock was trading down 0.9% Tuesday ahead of its fiscal fourth-quarter report, which is due after the market close.

The recent gains in transports are precarious because a slew of tepid economic data over the past several weeks seems to suggest that the US economy has started to slow down. That is bound to make investors nervous, especially as they grapple with continued uncertainty about inflation and the Federal Reserve’s plan for lowering interest rates.

“There has been a mini rotation out of momentum/technology names and into cyclical/value groups, which includes transports,” said Adam Crisafulli, founder of the Vital Knowledge newsletter. FedEx’s results are among a few events with the most potential to move the entire market over the coming weeks, Crisafulli said. That list that also includes the first presidential debate on Thursday and the Federal Reserve’s bank stress tests.

“There’s a sense that the transport market has been performing so poorly for so long, that conditions will start looking better, if for no other reason than that year-over-year comparisons will be getting easier,” he added.

Indeed, any setback after FedEx’s results will only be the latest for a group that has seen wild gyrations this year, amid weak results and gloomy forecasts. On the other hand, if the courier giant is able to soothe anxieties about challenging conditions in the freight industry and provide a reasonable outlook, that will be a welcome sign for the sector, as well as the broader economy.

Even with the recent exuberance, the Dow transport index is down nearly 5% so far this year, compared with a 14% rise in the S&P 500 and a 4.5% gain in the Dow Jones Industrial Average over the same period.

Analysts, on average, expect FedEx to report revenue that will be almost unchanged compared to the previous year, and estimate its adjusted profit will rise about 8%. Broadly though, the focus will be on the outlook for fiscal 2025, especially given the loss of a key contract with the US Postal Service. Estimates for the year have been coming down, and analysts now expect both revenue and earnings to be about 4% lower than what they anticipated 12 months back.

“There are doubts around sustainability of US consumer spending,” said Jairam Nathan, an analyst with Daiwa Capital Markets. 

Still, the low expectations could be just what the stock needs in order to keep its newfound strength going.

“We could see FedEx stock reacting positively if management offers a weaker but beatable guidance for fiscal 2025,” Nathan added.