Unbeknownst to most except for people who make a vocation or an avocation following these things, the Dow Jones Transportation Index begins today's trading at an all-time high.
The 20-stock index, comprised of 15 freight transportation companies and five airlines, closed on Friday at $5,695.27. The index began the year at $5,435.74. Financial markets were closed Monday in observance of the Dr. Martin Luther King, Jr. national holiday.
The index has traditionally been viewed as a proxy of economic activity, the idea being that products cannot be shipped unless they are first ordered, and that strong shipping volumes will reflect solid or growing end demand.
The performance of the transport index is considered a leading economic indicator, since purchase orders are cut before the goods are received. One theory is that shipping activity leads overall economic activity by six months.
For market fanatics, transport stocks are a key component of an ancient precept known as the "Dow Theory." Under the Dow Theory, if the transport index hits a new high and the more well-known Dow Jones Industrial Average soon follows suit, a bull market in stocks is either underway or getting stronger. Conversely, if the two averages diverge, that could signal trouble ahead.
The Dow Jones Industrials are approximately 3 percent below their all-time high set in the fall of 2007. Shortly after hitting those lofty levels, the index would begin a steep 17-month descent to 12-year lows as the world became gripped in a financial crisis and a nasty recession.
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