Transportation ETFs Reflect a Strengthening Economic Environment

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Transportation stocks and sector-related exchange traded funds have been gaining momentum, a bullish signal that the U.S. economy is on the mend after the broad market pullback last year and concerns over slowing growth.

Year-to-date, the iShares Transportation Average ETF (IYT) increased 11.0%, SPDR S&P Transportation ETF (XTN) advanced 13.6%, First Trust Nasdaq Transportation ETF (FTXR) rose 8.9% and U.S. Global Jets ETF (NYSEArca: JETS) gained 11.6%.

The transportation sector is widely viewed as a gauge for economic activity since the companies transport the raw materials and goods that power the economy and manufacturing. The Dow Jones Industrial Average has strengthened 18% since the Christmas Eve lows, compared to the 15% advance in the broader Dow Jones Industrial Average, the Wall Street Journal reports.

Nevertheless, there are some who remain wary of the economic rebound as persisting hurdles remain, pointing out that the widely viewed transports index is still 12% below its September 14 high.

"Right now, they're not quite signaling an all clear yet," Carlos Dominguez, president and chief investment officer at Miami-based Element Pointe Advisors, told the WSJ. "I'd like to see some of these transportation names show leadership before I say that the next phase of this bull market is in place."

The transport segment was particularly hit hard in the wake of rising global growth concerns and the escalating U.S.-China trade war rhetoric. However, things are looking up as the Federal Reserve hinted that it could ease up on interest rate hikes, along with stronger-than-expected corporate earnings and easing global trade war fears.

"If manufacturers are shipping goods and consumers are ordering goods, that's always a bullish sign," Nancy Tengler, chief investment strategist of Tengler Wealth Management, told the WSJ.

Additionally, airlines have also benefited from lower fuel costs and provided strong forecasts for the year, despite the partial government shutdown that disrupted normal air travel in the December and January months.

"The airline industry is in a great position right now, especially U.S. airlines," Priyal Maniar, a senior research analyst at Brandywine Global, told the WSJ. "Demand is solid and earnings are the strongest they've been in the last several years."

For more information on Transportation ETFs, visit our Transportation category.


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