The Significance of the Transportation Index – Historical Note

The Dow Jones Transportation Index is a historical index that dates back to 1884. It is comprised of leading bellwether transportation stocks in the trucking and delivery sector, domestic airlines, as well as companies in the railroad sector.

As a leading indicator of economic growth, these strong gains in the index are often a good sign for the U.S. economy, especially in periods when energy prices are high or increasing as well. The biggest risk to these strong gains is most likely a pullback in consumer spending activity, which would negatively affect shipping and logistics demand. Consumer confidence, manufacturing activity, and strong corporate earnings are all factors to watch to see if these gains in transportation related stocks are sustainable.

The Transportation index is also one of the underpinnings of the Dow Theory of stock price movements. This technical theory states that a major trend in the stock market must be confirmed by the simultaneous movement of the Dow Jones Industrial Average and, the Dow Jones Transportation Average to new highs or lows.

Source: Dow Jones