(Bloomberg) -- FedEx Corp.’s earnings on Thursday are likely to provide some clues about how much further the stock market rally can go after its latest record run, at least according to the stock market thesis called the Dow Theory.

Coined around the turn of the 20th century by Charles Dow, who invented the Dow Jones Industrial Average and the Dow Jones Transportation Average, the Dow Theory states that a move by the industrials index must be confirmed by the transportation index, or vice versa, for a true market trend to take hold. That hasn’t happened this year, as the main Dow benchmark has hopped from record to record while the transport gauge has languished.

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Based on the Dow Theory, the stock market is starting to look ominous. Since 2005, the gap between the Dow Industrials and Transports has only been this wide on four occasions: the global financial crisis in 2008 and 2009, the Covid crash in 2020 and the tariff freak-out in April.

There is a broader logic to the theory. Companies that provide transportations for goods and people are usually major beneficiaries of a strong economy, so when they struggle, it can be seen as a sign of trouble for the market. And with FedEx, the second-largest weighted stock in the transport index, due to report results, Wall Street is watching the group closely.

“FedEx, UPS, Delta, all these airlines, they’re pretty important companies and good bellwethers for the health of the economy,” said Tyler Richey, technical analyst and editor of the Sevens Report.

Souring on Delivery

Wall Street has soured on package delivery stocks this year as the Trump administration’s tariffs have dampened demand for shipments.

FedEx is down 20% in 2025, making it one of the 50 worst performing stocks in the S&P 500 Index. Meanwhile, United Parcel Service Inc. shares have tumbled 33% to near the lowest level since 2013. The company is the worst performer in the Dow Transport Index, as its plan to reduce its business with Amazon.com Inc. further weighs on sentiment.

By comparison, the S&P 500 is up 12% this year, while the Dow has gained 8% and the Dow Transport Index has declined 2.5%.

Analysts expect FedEx to report slight growth in revenue and adjusted earnings per share in the first quarter of its fiscal year. But the stock market reaction will likely hinge on whether company sees a rebound coming in the holiday season, its busiest period. FedEx has given a forecast only for this quarter, not beyond, while UPS has abandoned its guidance for this year.

“This will be an important earnings call,” said Dec Mullarkey, managing director at SLC Management.

De Minimis Exemption

In particular, investors will be curious to hear how the company plans to manage the Trump administration’s decision to end the so-called de minimis exemption, which allowed packages worth $800 or less to enter the US duty free. FedEx and UPS took a hit in May when the administration closed the loophole for China and Hong Kong. It ended for the rest of the world on Aug. 29, threatening more pain for the carriers.

“Commentary on the end of de minimis exceptions will likely be top of mind for investors,” CFRA analyst Devyn DeLange wrote in a note to clients last week.

On the other hand, FedEx shares may have fallen so far that they can start climbing even without a blockbuster report.

“I can’t recall a time when investor sentiment has been this negative on UPS and FedEx, and you can see that reflected in the valuation,” Citigroup analyst Ari Rosa said. “To get to significant upside in these stocks, you really don’t have to make particularly aggressive assumptions relative to historical performance or relative to historical valuations.”

In the meantime, the Dow Theory’s warning sign keeps flashing, although some strategists argue that it has little merit in the digital age. For example, it misses the massive vertically integrated retailers like Amazon and Walmart that handle their own shipping and delivery.

“Where do you order the majority of your stuff from?” said Joe Mazzola, head trading and derivatives strategist at Charles Schwab Corp. “I don’t think Amazon shipping shows up in the Dow Jones Transport index.”

Nevertheless, the Sevens Report’s Richey argues that the Dow Theory should be used in conjunction with other indicators to get a full picture of the economy.

Those measurements are also looking bearish, from the Treasury yield curve steepening, to credit spreads edging higher, to the ratio of the price of gold price to the price of oil, which is at its highest since 2020. Now FedEx’s earnings have a chance to refute these trends — or confirm them.

“If Charles Dow was still alive,” Richey said, “he’d look at these two Dow charts, and look at the S&P, and I believe his opinion would be: ‘That’s a massive bull trap.’”

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