Industrial stocks have been solid performers this year. As measured by the Industrial Select Sector SPDR (NYSEArca: XLI), the largest industrial exchange traded fund (ETF), the group is up more than 4% year-to-date. Within the broader industrial sector, transportation stocks have also been solid.
For example, the iShares Transportation Average ETF (NYSEArca: IYT) is up more than 3% this year and that is with the railroad industry facing some issues. That is an important factor to consider with the popular IYT because railroads account for nearly 24% of the ETF’s weight, comprising the second-largest industry group in the fund.
“We still have a lot of headwinds, specifically as the commodity supercycle is really coming to a close. The strong dollar is a headwind. Certainly the coal business is a headwind. The rest of the economy on the consumer side actually feels pretty good,” Burlington Northern Santa Fe (BNSF) Chairman Matthew Rose told Yahoo Finance.
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BNSF is a unit of Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A). CSX Corp. (NasdaqGS: CSX) recently reported profits declined 20% in the first quarter year-over-year and revenue was 14% lower, matching and missing expectations, respectively, as coal sales declined. However, CSX still bounced higher in what may be attributed to the company’s move toward cost savings.
According to the U.S. Bureau of Transportation, the volume of freight transported by road, rail, air, barge and pipelines has been flattening or lower since the end of 2014, Reuters reports. Meanwhile, stubbornly low energy prices may help the transportation industry cut down on costs.
[related_stories]Transportation stocks were expected to benefit from lower oil prices and while that has been the case for airline stocks, other industry groups represented in IYT, including railroads, have struggled.
IYT’s charts indicate the ETF could be primed for a near-term pullback.
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“The weekly chart for the transportation ETF is positive but overbought with the ETF just above its key weekly moving average of $140.22, and above its 200-week simple moving average of $130.88. The weekly momentum reading is projected to slip to 84.49 this week down from 85.68 on April 29, both above the overbought threshold of 80.00,” according to TheStreet.com.
Market observers are optimistic about a cyclical recovery where U.S. consumers and businesses spend more, which would add to increased activity through railways and transportation sectors. Railroads are popular plays among some of the largest investors, including Bill Gates and Warren Buffett.
iShares Transportation Average ETF
