The two major transportation exchange traded funds were not among the 140 ETFs that made new highs on Wednesday, but the duo are knocking on the door of doing just that.

Increased strength in the industrial sector is serving as a positive catalyst for shares of airlines, railroad operators and package shipping firms, the primary constituents in transportation ETFs.

“Jim Corridore, Head of Industrial Equity Research for S&P Capital IQ, points to a number of improving economic indicators supporting the positive sector view. These include industrial production growth of 0.6% in May, following contraction in April, and capacity utilization of 0.2% in May after a 0.4% decline in April,” said S&P Capital IQ in a new research note.

The research firm is bullish on air freight and logistics stocks such as FedEx (NYSE: FDX). Shares of FedEx (NYSE: FDX) surged 6.2% on Wednesday after the company reported better-than-expected quarterly results and announced a 33% dividend hike.

FedEx is the largest holding in the iShares Transportation Average ETF (NYSEArca: IYT) at 9.7% of the ETF’s weight. S&P Capital IQ has a marketweight rating on the $1.1 billion IYT. In a sign of investor faith in transportation stocks, IYT has added over $143 million in new assets since the start of May. [New Highs for Transportation ETFs]

“S&P Capital IQ also has a positive fundamental outlook for the airline sub-industry for the next 12 months. Traffic statistics showed improving demand and with recently reduced capacity should allow the carriers to raise prices,” said the research firm.

IYT allocates 16% of its weight to airline stocks. The SPDR S&P Transportation ETF (NYSEArca: XTN), an equal weight answer to IYT, features a larger airlines allocation at nearly 25%. That is an advantage as airlines from Alaska Air (NYSE: ALK), to Delta (NYSE: DAL) to Southwest (NYSE: LUV) boost buybacks and dividends as they have been in recent months. [Airlines Lift Transportation ETFs]

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