The Dow Jones Transportation Average (DJTA), often referred to as the “Dow Transports,” stands as a price-weighted index encompassing 20 prominent transportation stocks actively traded within the United States. This index, a cornerstone of market history, holds the distinction of being the oldest U.S. stock index, with its origins dating back to 1884. It was first meticulously compiled by Charles Dow, a co-founder of the esteemed Dow Jones & Company, solidifying its place in financial legacy.
Initially, the index’s composition heavily favored railroad companies, reflecting their paramount importance in the 19th-century American economy. Nine railroad companies formed the core, accompanied by just two entities from outside this dominant sector. This composition underscores the railroads’ undisputed leadership in U.S. transportation during that era. However, the index’s scope has broadened significantly over time. Today, it reflects the diverse landscape of modern transportation, incorporating airlines, trucking firms, marine transportation services, delivery specialists, and comprehensive logistics enterprises.
Key Points to Understand
- The Dow Jones Transportation Average (DJTA) is a crucial price-weighted benchmark tracking the performance of 20 major transportation stocks in the U.S. market.
- Beyond railroads, the index now provides insights into a wide array of transportation sectors, including airlines, trucking, maritime operations, delivery services, and logistics.
- Market observers closely monitor the Dow Jones Transportation Average as a vital indicator of the U.S. economic health, particularly those who adhere to the principles of Dow Theory.
- Modifications to the DJTA’s composition are infrequent, typically occurring only in response to significant corporate events such as mergers, acquisitions, or fundamental shifts in a component company’s primary business focus.
Delving Deeper into the Dow Jones Transportation Average
While the transportation sector’s proportional influence on the overall stock market has evolved since the DJTA’s inception, its significance as an economic bellwether remains considerable. Transportation stocks often exhibit distinct trading patterns compared to the broader market, making them a valuable tool for discerning market trends and potential shifts. For astute traders and investors, analyzing the Transportation Average Index can offer predictive insights into wider market movements.
A primary application of the Dow Jones Transportation Average lies in its capacity to forecast the direction of the Dow Jones Industrial Average. Financial analysts and economists frequently leverage the DJTA to gain a deeper understanding of market dynamics and anticipate future trajectories.
The Dow Jones Transportation Average is particularly scrutinized for its role in validating the state of the U.S. economy, a cornerstone of Dow Theory. This established theory posits that the Dow Jones Industrial Average (DJIA) and the DJTA should move in concert to confirm prevailing market trends. Specifically, it suggests that if industrials are producing goods (making), transportation companies must be actively moving those goods to market (taking). Therefore, the DJTA is expected to corroborate the trends observed in the Dow Jones Industrial Average (DJIA). Conversely, a divergence between these two indices – where one rises while the other falls – can signal a potential trend reversal or underlying economic weakness.
In practical terms, if the DJIA is trending upwards while the transportation average index, the DJTA, is declining, it may be an early warning sign of impending economic deceleration. Such a divergence suggests that the pace of goods being transported is not keeping up with production levels, indicating a potential softening in nationwide demand.
On December 9, 2020, the DJTA reached a record high, surpassing 12,800 points, marking a significant recovery from its fall below 6,800 in March 2020. The earlier drop was triggered by widespread concerns stemming from a global crisis that severely impacted airline stocks, precipitating a substantial bear market. Notably, prior to this downturn, the Dow Jones Industrial Average (DJIA) had continued its upward trajectory, reaching new peaks until February 2020. This divergence between the DJTA and DJIA in the lead-up to the market correction served as a real-world validation of Dow Theory’s predictive capabilities.
It’s worth noting that the Dow Jones Industrial Average (DJIA), now a globally recognized benchmark, evolved from the original Dow Jones Railroad Average established in 1884, highlighting the historical roots shared by these key market indicators.
Current Components of the Transportation Average Index
As of May 2023, the Dow Jones Transportation Average comprises the following 20 companies, representing a diverse spectrum 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 components of the transportation average index are infrequent. Such revisions typically occur only when necessitated by major corporate restructuring, such as acquisitions, or significant shifts in a constituent company’s core business activities. Interestingly, Union Pacific stands as the sole original component of the DJTA that has remained continuously within the index since its inception.
When a component replacement becomes necessary, a comprehensive review of the entire index is undertaken to ensure continued relevance and representation. Historical examples of component changes include: Alaska Air Group, Inc. taking the place of AMR Corporation on December 2, 2011, following AMR Corp.’s bankruptcy filing; Kirby Corp. succeeding Overseas Shipholding Group, Inc. effective October 30, 2012; Avis Budget Group Inc. replacing GATX Corporation on October 1, 2014; and American Airlines Group Inc. stepping in for Con-way on October 15, 2015. These adjustments reflect the dynamic nature of the transportation industry and the index’s commitment to accurately mirroring its key players.
