Earnings Reports Tank Transportation, Oil ETFs

 |  Includes: DBO, IYT, OIL, USO, XTN
by: Wall Street Sector Selector

By John Nyaradi

Transportation Sector ETFs including the iShares Dow Jones Transportation Average Index Fund (NYSEARCA:IYT) and the SPDR S&P Transportation ETF (NYSEARCA:XTN) dropped Tuesday after United Parcel Service (NYSE:UPS) released their negative earnings report. UPS reported a roughly $275 million decrease in Q4 2011 compared to Q4 2012. UPS serves as a bellwether for the transportation industry, and although the company expects growth in 2012, a negative UPS earnings report indicates that the transportation sector is still fragile. If indeed the US economy were growing and recovering at a brisk pace, typically the transportation sector would follow through in the same fashion.

Oil ETFs including the United States Oil Fund LP ETF (NYSEARCA:USO), the PowerShares DB Oil Fund ETF (NYSEARCA:DBO), and the iPath S&P GSCI Crude Oil Total Return Index ETN (NYSEARCA:OIL), declined nearly 1% Tuesday on the negative earnings report released by large oil tycoon Exxon Mobile (NYSE:XOM). Although Exxon Mobile reported an overall 2% increase in earnings in 4th quarter of 2011 compared to 4th quarter 2010, oil production was down 9%, which likely triggered the down turn in Oil ETFs. Oil tycoon Chevron (NYSE:CVX) also reported negative earnings last week, alongside decreased oil production as well. All in all, global production of oil has been on a decline in past weeks, likely due to a looming economic recession in Europe and a stronger US dollar.

Transportation ETF Summary

  1. iShares Dow Jones Transportation Average Index Fund ETF (NYSEARCA:IYT): -0.08 (-0.08%)
  2. SPDR S&P Transportation ETF (NYSEARCA:XTN): -0.11 (-0.22%)

Oil ETF Summary

  1. United States Oil Fund LP ETF (NYSEARCA:USO): -0.19 (-0.50%)
  2. PowerShares DB Oil Fund ETF (NYSEARCA:DBO): -0.12 (-0.42%)
  3. iPath S&P GSCI Crude Oil Total Return Index ETN (NYSEARCA:OIL): -0.15 (-0.60%)

Bottom Line

Transportation Sector ETFs and Oil ETFs go hand in hand, and negative earnings reports from both UPS and Exxon Mobile likely triggered the decline of transportation and oil ETFs Tuesday. As increased oil consumption and transportation growth are typically indicators of a growing economy, it is evident from Tuesday’s earnings reports and ETF action that American growth is still very fragile and likely not sustainable. Likewise, if Iranian tensions fire up again, oil prices will likely rise anyhow, which would further hinder transportation sector growth.

Disclosure: Wall Street Sector Selector actively trades a wide range of exchange traded funds and positions can change at any time.