Initially, the index was heavily focused on railroads, comprising nine railroad businesses out of eleven total components. This composition reflected the paramount role of railroads in American transportation during the late 19th century. Today, Dow Transport has evolved to represent a broader spectrum of the transportation sector, including not only railroads but also airlines, trucking firms, marine transportation services, delivery companies, and logistics providers.
Key Points to Understand about Dow Transport:
- Dow Transport is a price-weighted index of 20 U.S. transportation stocks.
- Beyond railroads, it now encompasses airlines, trucking, maritime, delivery, and logistics sectors.
- It’s a closely monitored index for insights into the U.S. economic condition, particularly by followers of Dow Theory.
- Changes within Dow Transport’s components are infrequent, typically occurring due to significant corporate events like mergers or fundamental shifts in a company’s business.
Delving Deeper into the Dow Jones Transportation Average
While the transportation industry’s weight within the overall stock market has diminished since the DJTA’s inception, transportation stocks can exhibit unique trends compared to the broader market. These trends can offer valuable clues for traders and investors seeking to anticipate market shifts.
One of the primary applications of Dow Transport is to predict the direction of the Dow Jones Industrial Average (DJIA).
Dow Transport is a key indicator for assessing the health of the U.S. economy, especially according to Dow Theory. This financial theory posits that for a sustained market trend, what “industrials make” must be “taken” and distributed by transports. Therefore, Dow Theory suggests that the DJTA should validate the trend observed in the Dow Jones Industrial Average (DJIA). A divergence between the two indices could signal a potential trend reversal.
For example, if the DJIA is rising while Dow Transport is declining, it might indicate impending economic weakness. Such a divergence suggests that goods are not being transported at the same rate they are being produced, implying a decrease in national demand.
Dow Transport reached a record high of over 12,800 points on December 9, 2020, after plummeting below 6,800 in March 2020 due to global crisis concerns that severely impacted airline stocks during a significant bear market. Notably, 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 an early confirmation of Dow Theory’s predictive power.
It’s important to remember that the more widely recognized Dow Jones Industrial Average (DJIA) itself originated from the original Dow Jones Railroad Average established in 1884, highlighting the historical significance of transportation in the Dow indices.
Current Components of Dow Transport
As of May 2023, Dow Transport includes the following 20 companies representing diverse segments of the transportation industry:
- Alaska Air Group, Inc. (ALK)
- American Airlines Group Inc. (AAL)
- Avis Budget Group, Inc. (CAR)
- C.H. Robinson Worldwide, Inc. (CHRW)
- CSX Corp. (CSX)
- Delta Air Lines, Inc. (DAL)
- Expeditors International of Washington, Inc. (EXPD)
- FedEx Corp. (FDX)
- J.B. Hunt Transport Services, Inc. (JBHT)
- JetBlue Airways Corp. (JBLU)
- Kirby Corp. (KEX)
- Landstar System, Inc. (LSTR)
- Matson, Inc. (MATX)
- Norfolk Southern Corp. (NSC)
- Old Dominion Freight Line (ODFL)
- Ryder System, Inc. (R)
- Southwest Airlines Co. (LUV)
- Union Pacific Corporation (UNP)
- United Airlines Holdings, Inc. (UAL)
- United Parcel Service (UPS)
Changes to the composition of Dow Transport are infrequent. They typically occur when a component company is acquired or undergoes a major change in its core business operations. Interestingly, Union Pacific stands as the sole original component from the 1884 DJTA that remains in the index today, showcasing its enduring presence in the transportation sector.
When a component needs replacement, a comprehensive review of the entire index is conducted. Historical replacements include Alaska Air Group, Inc., which replaced AMR Corporation on December 2, 2011, after AMR Corp.’s bankruptcy filing. On October 30, 2012, Kirby Corp. took the place of Overseas Shipholding Group, Inc., and on October 1, 2014, Avis Budget Group Inc. replaced GATX Corporation. More recently, on October 15, 2015, American Airlines Group Inc. replaced Con-way in the index. These changes reflect the dynamic nature of the transportation industry and the index’s efforts to accurately represent its leading players.
