Transportation ETF Going Places as Economic Confidence Returns

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Transportation ETF Going Places as Economic Confidence Returns

Truckers, airlines and railroads have been on the move as confidence recovers in the U.S. economy.

The iShares Transportation Average ETF (IYT) rose 4.4 percent in the last week. That’s the biggest gain among over 50 major funds tracked by Market Insights for our regular ETF coverage.

The rally began one day after Federal Reserve Chairman Jerome Powell told Congress he’s willing to cut interest rates on July 31. That dispelled worries about a recession and triggered buying in economically sensitive sectors like transports.

Earnings are another big catalyst — especially for airlines. Delta Air Lines (DAL) beat estimates last week and raised guidance thanks to higher fares. United Airlines (UAL) reported similar news last night.

Other major transportation stocks also issue results this week. Railroads Union Pacific (UNP) and Kansas City Southern (KSU) are scheduled for Thursday and Friday mornings, respectively. Rival CSX (CSX) slipped on poor numbers yesterday afternoon.

More Results Coming

Other big names like United Parcel Service (UPS), Norfolk Southern (NSC) and Southwest Airlines (LUV) follow next week.

J.B. Hunt (JBHT), a trucker that’s the tenth-biggest holding in IYT, also spiked 10 percent in the last five sessions after earnings shrank less than feared.

 iShares Transportation Average ETF (IYT) with potential basing pattern and select moving averages.
iShares Transportation Average ETF (IYT) with potential basing pattern and select moving averages.

IYT tracks the Dow Jones Transportation Average, which is often used as a forward-looking indicator of the economy. Classic “Dow Theory” from the late 1800s states that new highs in railroads “confirm” a strong economy and may give investors confidence to buy other stocks.

That raises a question about last week’s breakouts in the three major indexes. Is Dow Theory flashing a bearish signal, or are the underlying companies just behind the curve?

Regardless of how you answer that, technical analysts may like some of the price action. IYT appears to have formed a basing pattern with a low above $180 in the last two months. It also broke 50- and 200-day moving averages at the end of June and then found support at both.

Holdings in the iShares Fund

Railroads account for one-third of IYT. Freight companies are about one-quarter, followed by airlines and truckers. Here are the five biggest holdings in the portfolio:

  1. Norfolk Southern (NSC): Despite being No. 1 in the fund, NSC is actually the fourth-biggest railroad in the U.S.
  2. Union Pacific (UNP): The biggest freight-train operator, with ties to the first company to span the continent in 1869.
  3. FedEx (FDX): The well-known parcel shipper founded in 1971.
  4. Kansas City Southern (KSU): The No. 7 railroad is known for its links with Mexico.
  5. Landstar System (LSTR): A Jacksonville, Florida-based provider of trucking and ocean shipping.

In conclusion, transportation stocks have quietly come to life since Powell’s dovish comments and as earnings approach. Hopefully this post gets you up to speed on the sector.

This post is part of our regular “ETF of the week” series. It focuses on exchange-traded funds with interesting news or price changes.

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