With other major stock market averages in the United States rising to all-time highs, the Dow Jones Transportation Index struggled.
The index as of March 4 was 6% below the all-time high reached in November 2021 – 28 months ago. Over the past year, Dow Transportation has lagged the broader Dow Jones Industrial Average (DJIA) by more than 12 percentage points. The reason that has many investors concerned is the belief that the transportation sector is a leading indicator of US economic activity.
However, I couldn't find any data to support this. On the contrary, there is actually some evidence to suggest that the overall market performed better in the wake of relative weakness on the part of Dow Transportation.
Consider what I found when I analyzed the performance of the US stock market since 1928. For every trading day since then, I calculated the difference in the 12-month returns of the Dow Industrials and the Dow Transports. I also calculated the returns of the S&P 500 and its predecessor index (the S&P 500 was introduced in 1957) for each day, over the subsequent three, six, and twelve months. I found that the S&P 500 performed better on average after periods in which the Dow Transportation Corporation significantly lagged the Dow Jones Industrial Average—as is the case now.
These differences are plotted in the chart below:
Absolute vulnerability versus relative vulnerability
These results show that the relative weakness on the part of Dow Transports is not a serious cause for concern. But what happens when Dow Transports loses ground, not relative to the DJIA but in absolute terms? This question also relates to whether the Dow Transportation Index is a good leading economic indicator.
However, again, I saw no cause for concern. The S&P 500 performed better, on average, following 12-month periods in which the Dow fell rather than rose. The difference in trailing 12-month gains is 9.0% versus 6.6%.
Bottom line? There are plenty of legitimate reasons for concern these days, from overvaluation to overabundance. There's no need to compound these concerns by worrying about Dow Transports' weakness.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to audit them. It can be reached at mark@hulbertatings.com
more: US stock investors may be chasing the wrong target
Plus: While the tech rally is losing steam, this stock market breadth indicator is at its strongest level in years
