The transportation sector and related-exchange traded funds (ETFs) have experienced a nice run up on an improving U.S. economy. Some transportation ETFs are staying steady above trendlines, but investors need to watch out for any potential backlash from volatility in the global economy.
According to Gary Gordon for ETF Expert, the Shares Dow Jones Transportation Average ETF (NYSEArca: IYT) could tell investors when the U.S. economy is recovering.
While investment guru Warren Buffet has made individual plays on specific transportation companies, covering a key sector with an ETF may be a smarter and safer play.
Currently, IYT’s underlying benchmark, the Dow Jones Transportation Index, is trading at an estimated 19x forward earnings, as compared to the Dow Industrials’ forward price-to-earnings ratio of 12.3, which illustrates the momentum that the transportation sector has enjoyed over the last 6 months.
As long as transportation ETFs like IYT are above their 200-day moving average, investors can remain relatively optimistic about the funds. However, if the funds fall below the trendline due to volatility in the global economy, it may be time to get out.
FedEx Corp. (NYSE: FDX) gave a robust fourth-quarter profit outlook last week that was bolstered by higher base prices, greater fuel surcharges and an increase in shipping volumes across all its businesses. “The dynamics of global trade appear solid, although the impact of volatile fuel prices and other global events remains uncertain,” said Chairman and Chief Executive Fred Smith, on a call with analysts. FedEx is seeing strong margin improvement in its ground operations and improving margins at express and freight, said Standard & Poor’s Equity Research analyst Jim Corridore. FedEx makes up nealy 10% of IYT. [Economic Data, Upbeat Forecast Lift ETFs.]
For more information on the transportation sector, visit our transportation category.
Max Chen contributed to this article.