Transportation is the link between manufacturers of goods and the people that buy them. Even online shoppers in cyberspace depend on the trusty UPS or Federal Express trucks for their deliveries. Back in Charles Dow's day, railroads were the behemoth corporations of America. There are far fewer of them now, because of mergers brought about in large part by increased competition from trucks and airplanes.

The Dow Jones Industrial Average is the best-known U.S. stock index, but not the oldest. The Dow Jones Transportation Average has that honor.

The first Dow Jones stock index, assembled in 1884 by Charles Dow, co-founder of Dow Jones & Company, was composed of the stocks of nine railroad companies, including the New York Central and Union. Pacific, and two nonrailroad companies, Pacific Mail Steamship and Western Union. That was the ancestor of today's transportation average.

The iron horse powered the U.S. economy in the late 19th century. "The really strong companies at that time were primarily railroads," says Richard Stillman, professor emeritus of the University of New Orleans.

It wasn't until 1896 that the Dow Jones Industrial Average appeared. The same year, Mr. Dow published a list of 20 "active" stocks, 18 of which were rails—the direct predecessor of the transportation average. On Sept. 8, 1896, it stood at 48.55.

Over the years, railroads such as Union Pacific (the only remaining original stock) have been joined in the average by the likes of Southwest Airlines, Overseas Shipholding and Ryder System.

The story of the rails in this century is one of pride, fall and partial revival. In 1916, 254,000 miles of rail lines crisscrossed the country, nearly twice the current figure. But regulation of prices and "featherbedding" by unions stunted railroads, says Richard Sylla, an economic historian at New York University. The stagnant industry was pounded by competition from trucks, revitalized waterways and, finally, airplanes.

According to Professor Sylla, the Pennsylvania Railroad was the country's biggest corporation in the 1870s. A century later, its descendant, Penn Central, filed for bankruptcy.

Since 1980, deregulation has brought a revival of sorts. Railroad employment has fallen nearly 60%, but ton-miles shipped and the industry's net income have soared.

An elaborate analytical system dubbed Dow Theory (so named by people who followed Mr. Dow, but not by Mr. Dow himself) holds that the Dow Jones Transportation Average must "confirm" the movement of the Industrial Average for a market trend to have staying power. If the industrials reach a new high, the "transports" would need to reach a new high to "confirm" the broad trend. The trend reverses when both averages experience sharp downturns at around the same time. If they diverge – for example, if the industrial average keeps climbing while the transports decline – watch out!

The underlying fundamentals of the theory hold that the industrials make and the transports take. If the transports aren't taking what the industrials are making, it portends economic weakness and market problems, Dow Theorists maintain.

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