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Transportation ETF Rallies, But Some Traders Are Cautious

This article was originally published on ETFTrends.com.

After slumping last year, the iShares Transportation Average ETF (CBOE: IYT) and transportation stocks are surging to start 2019. IYT, which tracks the Dow Jones Transportation Average, is up nearly 5% to start the new year, but some market observers are advising a cautious approach to transports.

Transportation stocks were expected to benefit from lower oil prices and while that has been the case for airline stocks, other industry groups represented in IYT, including railroads.

“A drop of at least 30 percent in the railroad stocks would take the S&P industry down to levels not seen since the beginning of 2017. A 20 percent decline in the air freight and logistics industry would bring it to late-2013 lows,” reports CNBC.

The $604.67 million IYT allocates over 30% of its weight to railroad stocks, its largest industry weight.

“Your railroad stocks certainly could have 30 to 40 percent downside if there were a recession – we’re not seeing signs that’s what is coming,” said Stacey Gilbert, head of derivative strategy at Susquehanna, in an interview with CNBC. “Trucking and logistics names probably you could be looking at 20 percent downside — again, that’s not what’s there but we think that’s what some of the flow has been to protect against.”

Trending Transports

Going forward, the allure of infrastructure investing, which investors can easily engage in via exchange traded funds, could and should rise as governments around the world finally commit the capital necessary to upgraded dated and dangerous bridges, pipelines and roads. In the near-term, however, transportation investments could remain challenged.

“The gap in earnings growth estimates for the group will further split their performances through the rest of the year, S&P Glolba portfolio manager Erin Gibbs said. Freight and logistics companies, for example, are expected to post 2019 earnings growth of 3.4 percent, the smallest increase of the group,” according to CNBC.

Investors have pulled a small amount of cash from IYT this year after the fund bled $218 million in 2018.

For more information on Transportation ETFs, visit our  Transportation category.