[credit provider=”jurvetson” url=”http://www.flickr.com/photos/jurvetson/3091222567/”]
NEW YORK (TheStreet) — Amidst this busy spurt of earnings, companies in the transportation industry have logged some of the most noteworthy performances. Firms such as United Parcel Services(UPS), Delta Air Lines(DAL) and CSX(CSX) have all managed to top analyst forecasts. These beats, in turn, have helped to return the Dow Jones Transportation Average previous 2011 highs.The iShares Dow Jones U.S. Transportation Average Index Fund(IYT), which is designed to track this popular index, has benefited from this recent round of earnings strength. Currently the fund is not only seeing new 2011 highs but it has returned to previous all-time highs as well.
Looking ahead, it will be interesting to see if the index and ETF will be able to hold onto these current levels. Many investors turn to the transportation industry to get a feel for the state of the broader global economy. Therefore, if these levels do prove to be sustainable in the weeks ahead, it will likely provide many with a welcomed boost of confidence.
When focusing on the future prospects for the transportation industry, there are a number of factors to consider.
Throughout 2011, ascending commodity prices have been in the spotlight as investors attempt to weigh the impact that rising fuel costs will have on the industry’s strength.
Despite beating analyst estimates, both U.S. Airways (LCC) and Delta pointed in their earnings reports to oil prices a major source of headwinds. Other firms, such as UPS, have managed to wave any detrimental impact caused by crude’s ascension. Beyond the current earnings season, this will be an issue that will remain on the minds of both investors and companies.
Although it has not generated the same amount of press as oil’s rapid ascension, the consumer resurgence is another factor to keep in mind when attempting to forecast the future performance of the transportation industry. As the global economy has continued along the road to recovery, consumers have seen a boost in confidence as well, as evidenced earlier this week when after consumer confidence beat expectations.
As that confidence rises, consumers will become increasingly more comfortable spending on travel and discretionary goods and services. Airlines, railroads, and shippers will be in a good position to benefit as individuals around the world plan trips and place orders. In its quarterly earnings report, UPS provided promising insight into the state of the consumer. According to the report, the shipping giant saw an impressive uptick in overnight shipping. As mentioned in a Bloomberg piece from this week, this shows that customers are comfortable paying for speedier deliveries.
From an investing perspective, I have often pointed to IYT as a promising long-term bet on the economic recovery as well as a unique way to track the ongoing consumer recovery. The fund’s index is well designed for conservative minded investors. Although the largest chunk of the fund is directed towards large stable railroads and shipping firms, it also sets aside a comfortable portion of its portfolio for volatile components of the transport industry such as marine shipping and airlines.
Rising fuel prices will be a factor to watch down the road and may lead to some turbulence in the weeks and months ahead. However, investors confident that the markets are still on the road to recovery may want to consider jumping aboard IYT for the long haul.