According to Oppenheimer analyst, Ari Wald, the worst has yet to come for the transportation sector. The Dow Jones Transportation Average (NYSE:DJT) is down 19% in 2015 compared to the 2% fall that the Dow Jones Industrial Average (NYSE:DIA) has seen. For investors and analysts, this is seen as a warning sign for bad times ahead due to the long held notion that “industrials make and transports take”.
On Friday, the Transportation Average was down 2.25%, ending at 7,363.92, the lowest level seen since April 11, 2014, and entering into a bear market for the first time since 2008. A decline that started in March, this run, according to Evercore analysts, may have an effect on the broader market due to the fact that industrial and transport stocks have a corresponding relationship, with both stocks tracking each other to portray what the wider market should look like. If transports are not taking what is being made, this may hint to weakness in the market and future problems.
Transportation stocks are currently the second worst-performing group in the market, behind energy, with only one stock being positive for the last month. What has really puzzled both investors and analysts is that technically, transports should be trending upwards due to the low price of oil, a main cost of many corporations in the exchange traded fund (ETF). While understandable that railways and marine transportation feel the effects two-fold because they transport goods, truckers and airlines should not be on a downward trend.
For the future, most analysts are very bearish and expect transportation stocks to drag down the market. Oppenheimer technical analyst, Ari Wald, is expecting the DJT to fall below the 7,400 mark, dragging the Dow Jones to enter the 16,000 threshold with it. He is however more bullish for 2016, especially the airlines segment, seeing potential in both real and relative terms. More positive analysts, such as Manhattan Venture Partners, hope for support at 7,000 but are not optimistic due to softness in manufacturing activity, with railroads and truckers looking especially weak.