Dow Jones Transportation Average

Dow Jones Transportation Average. It is one of the oldest U.S. stock market indices, first calculated by Charles Dow in 1884. The index tracks the performance of twenty major companies in the transportation sector within the United States. It is a key benchmark for the health of the industrial economy and is closely watched for its role in Dow Theory.

History

The index was originally compiled by Charles Dow, co-founder of Dow Jones & Company, and was first published in the Customer's Afternoon Letter, the precursor to The Wall Street Journal. Initially composed of nine railroad stocks and two industrial companies, it was known as the Dow Jones Railroad Average. This early version reflected the dominance of rail transport in the 19th century American economy. The index was renamed to its current title in 1970 to better represent the broadening transportation sector beyond railroads, encompassing emerging industries like airlines and trucking. Throughout its history, its components have evolved significantly, mirroring major shifts in American industry and infrastructure.

Components

The index comprises twenty publicly traded U.S. companies involved in the movement of goods and passengers. Major sectors represented include air freight, airlines, railroads, trucking, maritime shipping, and delivery services. Notable constituents have included giants like UPS, FedEx, Union Pacific, and Delta Air Lines. The selection of components is overseen by a committee at S&P Dow Jones Indices, which considers factors such as a company's size, reputation, and representation of the sector. Changes to the roster are infrequent but occur to maintain the index's relevance, as seen with the addition of companies like JetBlue Airways in past rebalances.

Calculation methodology

It is a price-weighted index, meaning companies with higher stock prices exert a greater influence on its movements than those with lower prices, regardless of overall market capitalization. This methodology is shared with the Dow Jones Industrial Average. The index level is calculated by summing the prices of all twenty component stocks and then dividing by a divisor. This divisor is adjusted periodically to account for stock splits, spin-offs, or component changes, ensuring the index's continuity over time. This calculation is managed and published by S&P Dow Jones Indices.

Significance and use

It holds particular significance as one of the three core averages that make up the Dow Jones Averages, alongside the Dow Jones Industrial Average and the Dow Jones Utility Average. Its primary analytical use is within Dow Theory, a form of technical analysis pioneered by Charles Dow and later refined by William P. Hamilton and Robert Rhea. According to this theory, a sustained trend in the industrial average must be confirmed by a corresponding trend in the transportation average to validate a true market movement. As such, it is widely monitored by investors, analysts at firms like Goldman Sachs and JPMorgan Chase, and financial media including CNBC as a leading indicator for broader economic activity and corporate earnings.

Performance and trends

Historically, its performance has been cyclical, closely tied to economic expansions, contractions, and fuel price fluctuations. Major events like the OPEC oil embargoes, the September 11 attacks, and the COVID-19 pandemic have caused significant volatility. Over long periods, it has generally trended upward, reflecting economic growth, though it often exhibits greater volatility than the broader S&P 500. Analysts scrutinize its trends for signals about the health of sectors like manufacturing and retail, as strong performance suggests robust goods movement. Its interaction with the Dow Jones Industrial Average remains a focal point for market technicians at institutions like the CME Group.

Category:Dow Jones indexes Category:Transportation in the United States Category:1884 establishments in the United States