The iShares Transportation Average ETF (NYSEArca: IYT), the largest transportation exchange traded fund, is down nearly 7% over the past month, but some traders believe that decline has transportation stocks poised to bounce back.
IYT tracks the Dow Jones Transportation Average (DJT). 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 lagged broader equity benchmarks.
“The Dow Jones transportation average is now just barely negative on the year, but as recently as Friday it was down 14 percent from its 2018 highs hit in January,” reports CNBC. “The 20-constituent index, composed of airline and transport stocks like Delta Air Lines, J.B. Hunt and Norfolk Southern, rolled over with the broader market earlier this month before making a comeback in recent sessions.”
Going forward, the allure of infrastructure investing, which investors can easily engage in via exchange traded funds, could and should rise as governments around the world finally commit the capital necessary to upgraded dated and dangerous bridges, pipelines and roads.
Airlines are also a significant part of IYT’s lineup. There are encouraging fundamental factors for airlines, including low oil prices. Fuel is the largest input cost for airlines. The improving U.S. economy could encourage more business and leisure travel and airlines are generating impressive amounts of cash.
The U.S. Global Jets ETF (NYSEArca: JETS), which has also recently been struggling, is also showing signs of rebound potential. 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.
“Decades ago, it appeared transportation and technology stocks could not be more different, but a correlation between the groups is growing as e-commerce expands at a rapid clip,” reports CNBC, citing Michael Bapis, partner and managing director at the Bapis Group at HighTower Advisors. “As the connection between companies like Amazon and shipping firms intensifies, transport stocks should be favored for the long haul. Dips should be bought for the next year to 18 months.”
For more information on Transportation ETFs, visit our Transportation category.