Dow Jones Transportation

A fun complimentary index to the traditional Dow Jones Industrial Average

If you are reading this newsletter, you are probably well versed in many of the market indices, like the Dow Jones Industrial Average.

A lot of people, however, are less familiar with the Dow Jones Transportation Average, which is actually older than the Dow Jones Industrial Average and originally tracked the popular railroad stocks of the 1880s!

The transportation index has evolved since the railroad heyday to include trucking, logistics and other things that didn’t exist when it was first published like airlines. While both varieties of the Dow Jones are interesting in their own right, the ratio of the two is particularly fascinating:

The Dow Jones Industrial Average / Transportation Average ratio tends to rise prior to and during periods of economic and market weakness. Companies in the regular Dow make stuff and transport companies move stuff, so if the former is rising while the latter is not, it suggests there is a backlog that isn’t flowing through the economy properly.

Lately, the ratio has been surprisingly range-bound below its recent peak and has been ever since the COVID crash, which is a positive sign for the underlying economy. It also implies that the selloff in the market has been fairly broad, as opposed to sending a particular signal. All that being said, I’ll be watching for a breakout back to any levels seen since 2020 for any economic slowdown hints.