This article was originally published on ETFTrends.com.
Transportation stocks and indexes, namely the Dow Jones Transportation Average, are often watched as potential tells on the direction of broader equity benchmarks. If that theory holds true, the recent price action in the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN) could prove to be good news.
IYT tracks the Dow Jones Transportation Average (DJT). 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, have lagged broader equity benchmarks. XTN is an equal-weight spin on the transportation sector.
IYT, the largest transportation ETF, gained nearly 3.8% last month. After closing higher last Friday, the ETF is higher by almost 3% year-to-date.
“Transports' bullish behavior is bullish for the market, said Chris Verrone, head of technical analysis at Strategas Research Partners,” reports CNBC.
Dealing With Higher Oil Prices
The recent strength in transportation stocks comes against the backdrop of high oil prices. For its part, IYT allocates nearly 18% of its weight to airline stocks, a group usually inversely correlated to fuel prices. Airlines are IYT's fourth-largest industry weight.
Verrone “cited the group's ability to hold its 200-day moving average this year even when the broader market has faltered. Indeed, the Dow transport index hasn't breached its 200-day moving average to the downside since August,” according to CNBC.
IYT, which holds 20 stocks, resides 7.5% above its 200-day moving average. 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.
“Transport stocks are traditionally seen as an indicator of broader economic health, given transportation companies' wide usage across industries,” according to CNBC.
Investors have added $2.44 million to IYT in the current quarter.
For more information on Transportation ETFs, visit our Transportation category .
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