The Dow Jones Transportation Index has been showing some interesting signs of life of late, but other pressures threaten to keep transportation exchange traded funds (ETFs) down for the time being.
According to The Wall Street Journal, the strength in the Dow Jones Transportation Index for many months has signaled a strengthening of final demand. When final demand increases, movement of physical goods does, too. [Transportation ETFs Go on the Move.]
That’s the good.
Now that the sector is back to some reasonable semblance of health, analysts are looking ahead to what trends 2011 will bring. Discouragingly, they’re signaling that deliveries of new ships are accelerating quickly. [Transportation ETFs: The Good and the Bad.]
Tim Huxley on Forbes explains that this is the largest threat to the health of the shipping industry. Big state owned ship building yards are simply not profitable and the new supply of ships being built is larger than the demand for them.
iShares Dow Jones Transportation (NYSEArca: IYT) and Guggenheim Shipping (NYSEArca: SEA) have dipped in recent weeks – 1.6% and 2.2% in the last 10 days, respectively. Whether they can turn it around really depends on whether demand for those ships increases, which could happen as the recovery progresses.
For full disclosure, Tom Lydon’s clients own shares of IYT.
Tisha Guerrero contributed to this article.