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Are Transportation ETFs Up for a Sweet November?

Sanghamitra Saha

Transportation stocks and ETFs have been on a tear lately withiShares Transportation Average ETF IYT and SPDR S&P Transportation ETF XTN adding at least 10% in the past month, trumping the S&P 500’s 4.7% gains.

Why the Rally Still Has Legs

The sector is slated to see to a sweet November, if we go by the historical numbers. Per our Senior Quantitative Analyst Rocky White of Schaeffer’s investment research, “IYT has been the ETF to own in the month of November, looking back 10 years. Specifically, the fund has averaged a healthy monthly gain of 4.72%.”

The U.S. economy grew an annualized 1.9% in the third quarter of 2019, surpassing expectations of 1.6%, following a 2% uptick in the previous three-month period. Continued consumer spending as well as government expenditures probably led to the beat (read: U.S. Q3 GDP Better Than Expected: ETFs to Benefit).

Though tariffs and a global slowdown dented U.S. economic growth to some extent, consumer spending, which accounts for more than two-thirds of U.S. GDP, rose 2.9% following a 4.6% uptick in Q2. Consumption of goods (5.5% versus 8.6% last quarter), especially durable goods (7.6% growth against 13.0% recorded in Q2) basically provided the wind under the wings. If consumers are buying more durable goods, the need for shipping will rise. Trucks are a key transportation mode.

In late October, PACCAR Inc. PCAR, a leading manufacturer of heavy-duty trucks in the world, reported earnings of $1.75 per share for third-quarter 2019, which beat the Zacks Consensus Estimate of $1.62. Earnings were up 12.9% year over year. The stock is hovering around its new all-time high.

Interest rates remains at low levelsthanks to three Fed rate cuts this year. This is another tailwind for the market. As of Nov 6, 2019, the yield on the benchmark U.S. treasury yield was 1.81% versus 2.66% noticed at the start of the year (read: Fed Cuts Rates, Signals Pause: Trick or Treat for ETFs?).

A specific corner of the broader transportation sector — airlines looks up for a rally in the holiday season. “Averaging the stock-market performance of U.S. airlines since 1990 shows that the fourth quarter tends to be their best by far, with the shares rising close to 8%,” per Wall Street Journal. Decent leisure and business travel demand as well as moderate fuel prices work in favor of the sector. Normally, the sector benefits from higher air travel demand in the holiday season (read: Airlines ETF Fly Higher Despite Mixed Earnings).

Against the backdrop, investors should have a close tab on following ETFs.

iShares Transportation Average ETF IYT

The underlying Dow Jones Transportation Average Index measures the performance of companies from the Industrial Transportation, Airline and General Industrial Services industries of the U.S. equity market. The fund invests 33% in railroads, 24.3% in air freight and logistics, 18.2% in airlines and 17.7% in trucking.

SPDR S&P Transportation ETF XTN

The fund allocates 35.9% weight in trucking, followed by 25.5% in airlines, 19.6% in air freight & logistics, and 13% in railroads.

U.S. Global Jets ETF JETS

The fund offers pureplay exposure to the airlines stocks. It has gained about 11.7% in the past month.

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PACCAR Inc. (PCAR) : Free Stock Analysis Report
 
U.S. Global Jets ETF (JETS): ETF Research Reports
 
iShares Transportation Average ETF (IYT): ETF Research Reports
 
SPDR S&P Transportation ETF (XTN): ETF Research Reports
 
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