The Dow Jones Transportation Average (DJTA), often referred to as the “Dow Transports,” stands as the oldest stock market index in the United States. Created by Charles Dow in 1884, it predates even the more famous Dow Jones Industrial Average. This index tracks the performance of 20 major U.S. transportation companies, offering unique insights into the economic health and market trends. Understanding the Dow Jones Transportation Average requires a comparative approach, examining its historical context, its components, and its relationship to broader market indicators.
Understanding the Dow Jones Transportation Average: From Railroads to Modern Logistics
Initially, the DJTA reflected the dominance of railroads in the 19th-century American economy, comprising primarily of railroad companies. This focus was logical for the time, as railroads were the backbone of commerce and transportation. However, as the U.S. economy evolved, so did the DJTA. Today, while still including railroads, the index has broadened to encompass a diverse range of transportation sectors. This includes airlines, trucking companies, marine transportation, delivery services, and logistics firms. This evolution makes the Dow Jones Transportation Average a more comprehensive gauge of modern transportation trends compared to its original, railroad-centric focus.
The significance of transportation to the overall stock market has shifted since the DJTA’s inception. However, transportation stocks often exhibit patterns distinct from the broader market. These patterns can be invaluable for investors and analysts seeking to anticipate market shifts. One key application of the Dow Jones Transportation Average is in forecasting the direction of the Dow Jones Industrial Average (DJIA).
DJTA and Dow Theory: Comparing Industrials and Transports for Economic Insights
The Dow Jones Transportation Average is a critical tool for proponents of Dow Theory. This financial theory posits that the DJTA should confirm the trend observed in the Dow Jones Industrial Average (DJIA). The core principle is that “industrials make, and transports take.” In essence, for an economy to be truly healthy and growing, industrial production (represented by the DJIA) must be matched by the transportation of goods (represented by the DJTA).
According to Dow Theory, if the DJIA is trending upwards, reflecting growth in industrial production, the DJTA should also be trending upwards, indicating that these goods are being shipped and consumed. Conversely, a divergence between these two indices can signal a potential shift in the economic landscape. For example, if the DJIA is rising while the DJTA is declining, it suggests that goods are being produced but not transported at the same rate. This divergence could be an early warning sign of weakening nationwide demand and potential economic slowdown.
A notable example of this divergence occurred before the market downturn in early 2020. While the DJIA continued its upward trajectory into February 2020, the DJTA had already begun to weaken. This divergence, highlighted by Dow Theory, served as an early indicator of the economic fragility that preceded the sharp market decline in March 2020, triggered by global events. Conversely, the DJTA reached a record high in December 2020, recovering from a low in March of the same year, reflecting the volatile economic conditions and rapid shifts in market sentiment.
Components of the Dow Jones Transportation Average: A Sector Comparison
The Dow Jones Transportation Average comprises 20 leading companies across various transportation modes. As of May 2023, these components include:
- 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)
Examining these components provides a sector-level comparison within the transportation industry itself. The index includes a significant representation from airlines (Alaska Air, American Airlines, Delta, JetBlue, Southwest, United), reflecting the importance of air travel in modern transportation. It also features major players in freight and logistics (C.H. Robinson, Expeditors International, FedEx, J.B. Hunt, Landstar, Old Dominion, Ryder, UPS), highlighting the crucial role of goods movement in the economy. Railroads (CSX, Norfolk Southern, Union Pacific) maintain their presence, albeit as part of a more diversified index. Companies like Avis Budget and Kirby Corp. represent other segments like car rentals and marine transport, further broadening the scope of the DJTA.
Changes to the DJTA component list are infrequent and typically occur due to significant corporate events such as mergers, acquisitions, or substantial shifts in a company’s core business. Notably, Union Pacific remains the sole original component from the 1884 index, demonstrating the long-term evolution of both the transportation sector and the DJTA itself. Replacements, such as Alaska Air Group replacing AMR Corporation after its bankruptcy, or Avis Budget Group replacing GATX Corporation, underscore the dynamic nature of the transportation industry and the DJTA’s adaptation to these changes to remain a relevant benchmark.
In conclusion, the Dow Jones Transportation Average offers a valuable comparative perspective on economic health and market trends. By analyzing its historical evolution, understanding its components across various transportation sectors, and comparing its performance to the Dow Jones Industrial Average and applying Dow Theory, investors and analysts can gain deeper insights into the U.S. economy and potential market directions. The DJTA, as the oldest U.S. stock index, continues to be a relevant and insightful tool for understanding market dynamics.
