Dow Jones Transportation Average Index: Understanding the Pulse of the US Economy

Key Facts About the Dow Jones Transportation Average

• Historical Significance: The DJTA is the most senior U.S. stock index, offering a long-term perspective on market and economic shifts.
• Broad Sector Coverage: Beyond railroads, it now includes airlines, trucking, marine transport, delivery services, and logistics firms, representing a comprehensive view of the transportation industry.
• Economic Barometer: The DJTA is keenly observed as a key indicator of the U.S. economic condition, particularly by adherents of Dow Theory.
• Infrequent Component Changes: Adjustments to the DJTA’s components are uncommon, typically occurring due to significant corporate events like mergers, acquisitions, or major business restructurings.

Delving Deeper into the Dow Jones Transportation Average

While the transportation sector’s weight in the overall stock market has diminished since the DJTA’s inception, its predictive power remains significant. Transportation stocks often exhibit distinct patterns compared to the broader market, making the DJTA a useful tool for investors and analysts seeking to anticipate market movements.

One of the primary applications of the Dow Jones Transportation Average is to forecast the direction of the more widely followed Dow Jones Industrial Average (DJIA). This predictive capacity is rooted in the principles of Dow Theory.

The Dow Jones Transportation Average is a critical element in validating the health and direction of the U.S. economy, as interpreted through Dow Theory. This financial theory posits that the DJTA should confirm the trends observed in the Dow Jones Industrial Average (DJIA). The core idea is encapsulated in the saying, “as the industrials make and the transports take.” According to Dow Theory, a divergence between these two indices can signal a potential shift in the prevailing market trend.

For example, if the DJIA is trending upwards while the DJTA is declining, it could indicate underlying economic weakness. This divergence suggests that while production (reflected in the DJIA) might be increasing, the demand for transportation of goods (reflected in the DJTA) is not keeping pace. This mismatch can be an early warning sign of softening nationwide demand and potential economic contraction.

Historically, the DJTA reached a peak of over 12,800 in December 2020, rebounding strongly after falling below 6,800 in March 2020 during the global crisis. The sharp drop in early 2020 was largely driven by the severe impact on airline stocks during a significant bear market. Interestingly, prior to the market downturn in early 2020, the divergence between the DJIA, which continued to reach new highs, and the DJTA, which showed signs of weakness, served as a real-world confirmation of Dow Theory’s predictive capabilities.

It’s worth noting that the Dow Jones Industrial Average (DJIA), now a household name in stock market indices, evolved from the original Dow Jones Railroad Average of 1884, highlighting the historical importance of transportation in the development of market indicators.

Current Components of the Dow Jones Transportation Average

As of May 2023, the Dow Jones Transportation Average comprises the following 20 prominent companies in the transportation sector:

1. Alaska Air Group, Inc. (ALK)
2. American Airlines Group Inc. (AAL)
3. Avis Budget Group, Inc. (CAR)
4. C.H. Robinson Worldwide, Inc. (CHRW)
5. CSX Corp. (CSX)
6. Delta Air Lines, Inc. (DAL)
7. Expeditors International of Washington, Inc. (EXPD)
8. FedEx Corp. (FDX)
9. J.B. Hunt Transport Services, Inc. (JBHT)
10. JetBlue Airways Corp. (JBLU)
11. Kirby Corp. (KEX)
12. Landstar System, Inc. (LSTR)
13. Matson, Inc. (MATX)
14. Norfolk Southern Corp. (NSC)
15. Old Dominion Freight Line (ODFL)
16. Ryder System, Inc. (R)
17. Southwest Airlines Co. (LUV)
18. Union Pacific Corporation (UNP)
19. United Airlines Holdings, Inc. (UAL)
20. United Parcel Service (UPS)

While component changes are infrequent, reflecting the long-term stability of the index, they do occur. Notably, Union Pacific remains the sole original component from the 1884 index still included today, showcasing its enduring presence in the transportation industry.

When a component change is necessary, a comprehensive review of the entire index is undertaken. Historical examples of component changes include: Alaska Air Group, Inc. replacing AMR Corporation in December 2011 following AMR Corp.’s bankruptcy; Kirby Corp. succeeding Overseas Shipholding Group, Inc. in October 2012; Avis Budget Group Inc. taking the place of GATX Corporation in October 2014; and American Airlines Group Inc. replacing Con-way in October 2015. These changes illustrate how the DJTA adapts over time to reflect shifts within the transportation sector and the broader economy.