Why planes, trains, and automobiles are worth watching – the index, not the movie
The article highlights the significance of the Dow Jones Transportation Average—a price-weighted index of 20 major US transportation stocks like American Airlines and Union Pacific—as a key economic indicator, noting its sharp 43% COVID-19 recession drop followed by a 69% rally by mid-August 2020, which signals a broadening economic recovery and optimism for better times ahead.
We are big fans of the late director John Hughes. In fact, this is the second Weekly Wire where we have leaned on one of his films – this time it is “Planes, Trains, and Automobiles” – as a means of hopefully making our market and economic commentary more entertaining and relatable. Believe us, if we could find a way to incorporate the John Candy classic “Uncle Buck” into a Weekly Wire we would, in an instant (and all suggestions on that front are welcomed).
This week our focus is on planes, trains, and automobiles, specifically as those modes of transport and transportation tie back to the most economically sensitive – and the oldest – of US stock market indices, the Dow Jones Transportation Average. Constructed in 1884 by Charles Dow, the Dow Jones Transportation Average (“The Dow Transports”) is a price-weighted index of 20 US-traded transportation stocks. Among its better-known members are American Airlines, Union Pacific, and Avis Budget Group. Investors pay close attention to the Dow Transports for a read on the direction of the US economy which makes sense considering how closely the fortunes of its underlying component companies are tied to general economic conditions.
Well, the index has our attention this week. After peaking at 11,360 in mid-January, the Dow Transports corrected 43% as the COVID-19 driven recession racked the US economy. It ultimately bottomed out at 6,481 on March 18 (a few days before the S&P 500 Index made its low for this cycle) and then began a rally, which has seen the index gain 69% through the market close on Friday, August 14. While there is more than one way to interpret the strong absolute and relative performance of the Dow Transports, from where we sit its performance speaks to a broadening out of the ongoing economic recovery, and better economic times to come.