Transportation sector exchange traded funds have been among the best performers since the mid-October lows and could continue gaining speed as cheaper oil prices cut down on fuel costs and leave consumers with more cash to spend on goods.
Over the past month, the iShares Transportation Average ETF (NYSEArca: IYT) jumped 17.8% and the SPDR S&P Transportation ETF (NYSEArca: XTN) surged 23.1%.
Both ETFs track a collection of airliners, trucking and railroad companies. IYT follows a market capitalization-weighted index while XTN tries to equally weight component holdings.
Fueling the transportation sector’s gains, cheaper gas prices have helped companies cut down on fuel costs while consumers have been left with more to spend on merchandise that is shipped across the states, reports Michelle Fox for CNBC.
West Texas Intermediate crude oil futures now trade around $75.4 per barrel and Brent crude oil futures hover around $79.2. Over the past month, the United States Brent Oil Fund (NYSEArca: BNO) declined 12.8% and United States Oil Fund (NYSEArca: USO) decreased 11.6%.
Looking ahead, the International Energy Agency expects oil prices to fall even further as weak demand, a strong U.S. dollar and the U.S. shale oil boom pressures the energy market, reports Matt Clinch for CNBC. [Oil ETFs Languish Under Extended Bearish Outlook]
“Supply/demand balances suggest that the price rout has yet to run its course,” the IEA said in its new monthly report, released on Friday morning. “Our supply and demand forecasts indicate that barring any new supply disruption, downward price pressures could build further in the first half of 2015.”
Additionally, Jack Bouroudjian, CIO of Index Financial, believes that transportation stocks will continue to push forward due to pro-growth policies from a GOP-controlled Congress.
“These last couple months of the year is when we are going to see the chasing of returns and guess what lower energy prices are only to help that and add fuel to the fire,” Bouroudjian said.
However, transportation stocks may pullback if the Keystone Pipeline project is finalized – railroads could get hurt as the project would move oil off the rail to the pipeline.
The transportation sector ETFs were lower Friday after the House voted to approve the Keystone Pipeline, which will have to go through the Senate next week. The measure passed on a 252 to 161 vote for approval, Fox News reports.
IYT was down 0.2% Friday while XTN dipped 0.8%.
iShares Transportation Average ETF
For more information on the transportation sector, visit our transportation category.