Are Transportation Stocks about to Move?
Key points
- The transportation sector has been a significant laggard in the past year
- This sector is now entering its most favorable seasonal period of the year
- Traders should be alert for sector rotation into transportation stocks during the fourth quarter
Transports have been dead money...but that could change soon
The transportation sector has been a dreadful performer in the past year, both on an absolute and relative basis. The top clip below displays the performance of the iShares US Transportation ETF (IYT) in black and the SPDR S&P 500 Trust ETF (SPY) in blue. The bottom clip in the charts below depicts the performance of IYT relative to ticker SPY. The ratio has been in a virtually non-stop decline since late 2021.
Is this the moment to try to pick the bottom in this relationship? That's not necessarily the message. The primary message is that transportation stocks are entering what has generally been the most favorable seasonal period of the year.
The Annual Seasonal Trend chart for the iShares US Transportation ETF (IYT) highlights a period that extends from Trading Day of the Year (TDY) #190 through TDY #237. For 2025, this period extends from October 6th through December 11th.
The chart below displays the hypothetical growth of $1 invested in the Dow Jones Transportation Average only during this period every year since 1945.
The chart below shows the same results on a logarithmic scale. Note that occasionally (1957, 1987, 1989, and 2008), transports have gotten pummeled during this supposedly "favorable" period. Nevertheless, the longer-term "lower left to upper right" trend is apparent.
The table below summarizes the results during this seasonal period since 1945.
The price chart below shows that the Dow Transportation index has been "dead money" for the better part of the last year. On a more positive note, price is presently above its 70-day exponential moving average, thus we can state that it is objectively in an uptrend (at least for now).
What the research tells us…
As always, seasonality is merely an average of what has happened in the past, and not a roadmap to what will happen in the future. Likewise, a 75% win rate reminds us that historically one out of every four years has seen the expected (hoped for?) trend go in the wrong direction. It is important to note that the Dow Transports lost more than 10% during this period on seven separate occasions, including a loss in excess of -34% in 1987. So, traders should have no illusions that transportation stocks will magically perform well in the months ahead. Important decisions regarding position size and risk control remain the responsibility of each individual trader. That said, traders should not be surprised if the transportation sector finally comes to life in the months ahead.