The industrial sector has been solid this year and some of the sector’s recent strength is attributable to transportation stocks and exchange traded funds, such as the iShares Transportation Average ETF (NYSEArca: IYT) and the SPDR S&P Transportation ETF (NYSEArca: XTN).
After climbing 3.5% over the past month, IYT, the largest transportation ETF, is higher by 8.5% this year.
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: Not-So-Great Expectations for Industrial ETFs
The U.S. Global Jets ETF (NYSEArca: JETS), the lone dedicated airline ETF, is another transportation fund to consider. JETS follows the U.S. Global Jets Index, which uses fundamental screens to select airline companies, with an emphasis on domestic carriers, along with global aircraft manufacturers and airport companies.
“Traders have been waiting 18 months for the Transports to pull themselves up out of a decline. It would be important for many reasons, broader participation with the market, Dow Theory confirmation to name a few. But it may be best to take away the noise of the day-to-day price action to see what is happening,” according to Investing.com.
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.
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.
“How far will it go? There is no way to tell. But what is clear is that the Transportation Index has already reversed higher. Sure many will be happier with confirmation by a price move over a certain prior price point. But look at the moving averages. All are now lifting higher. Time to get on board,” adds Investing.com.
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