What is the Dow Jones Transportation Average?

The Dow Jones Transportation Average (^DJT) is a a price-weighted average of 20 transportation stocks traded in the U.S, according to Investopedia. The index initially included only railroad stocks, but has expanded to various modes of transportation such as airlines, rental and delivery companies. Some of those stocks include Delta Airlines (DAL), Avis Budget Group (CAR), FedEx (FDX), and Union Pacific (UNP).

Some economists and investment strategists follow the Dow Theory, which suggests the Dow Transport Average should follow the same trends as the Dow Jones Industrial Average. When the two diverge, for instance, if the Dow climbs while the Transport Average falls, that may signal economic weakness ahead.

Yahoo Finance's Ines Ferré breaks down the Dow Jones Transportation Average.

Key Video Moments:

00:00:00 About Dow Jones Transportation Average (DJTA)

00:00:15 Definition of DJTA

00:00:22 Stocks in DJTA

00:00:38 Dow Theory

Video transcript

INES FERRE: The Dow Jones Transportation Average is actually the oldest US stock index still in use today. In fact, the Dow Jones Industrial Average grew out of the transportation index, which at one point was mainly composed of railroad companies.

Now, the Dow Jones Transportation Average is a price-weighted average of 20 stocks traded in the US. The index includes airlines like Delta and American, rental companies like Avis, delivery services like FedEx and UPS, and rail and trucking like Union Pacific and Landstar System.

The average is seen as a barometer of the health of the economy. Now, some investors stand by the Dow theory. This theory states that if the Dow rises while the transport average falls, that may mean weakness in the economy ahead. Now, when the indices diverge, the market may be anticipating weaker demand for the transportation of goods and services, as would be the case in a global recession.