Much has been made of the recent under-performance in the DJ Transportation Index vs. the broader market as of late.
However, as the chart below details, there is no tablet carved in stone with the words “Transports must always out-perform to confirm overall market strength”.
In fact, over the past three to four years the DJ Transportation Index has been at the upper end of its all time high range on a relative basis vs. the SPX.
Even if we exclude the DJT’s massive under-performance vs. the SPX in the late 90s due to the out-performance of tech stocks in the composition of the latter index, transports could theoretically under-perform by another 15% before hitting the lower end of their “fair value” trading band vs. the SPX that’s been in effect since the late 80s.
Moreover, just a few weeks ago the ratio of the DJT Index vs. the SPX broke below trend-line support dating back to 2000 suggesting whatever secular tailwinds that have been in place for transports since then on a relative basis, are potentially no longer in effect.
Just something to think about – history suggests transports can under-perform as the broader market moves higher.