Market Insider

Dow transports hits new multiyear high on tailwinds from corporate tax reform and expected infrastructure spending

A customer boards an Avis Budget Group Inc. shuttle bus at the Denver International Airport (DEN) in Denver, Colorado, U.S., on Wednesday, Oct. 28, 2015.
Luke Sharrett | Bloomberg | Getty Images

The Dow Jones transportation average gained 0.6 percent on Thursday after hitting a new multi-year high dating back to March 2015.

Winners in the index included CSX, Kirby and Union Pacific, each gaining more than 2 percent on the day.

The biggest losers of the group included Matson, Kansas City Southern and American Airlines, each falling more than 1 percent.

Transportation companies are riding the tailwinds from corporate tax reform since they're the highest taxpayers in industrials, says Amit Mehrotra, a research analyst at Deutsche Bank. A corporate tax cut for these companies would result in an increase of billions of dollars in earnings and a $100 billion increase in equity value, he noted.

Expected spending on infrastructure should also drive demand for the industry, he added. All three Class 1 rail companies (CSX, Union Pacific and Norfolk Southern) struck a cautiously optimistic tone Wednesday on guidance, volume and expanding margins, providing some evidence that the demand side of the transportation industry is improving, Mehrotra added.

"In a world where global investors are asking, 'Which companies should I invest in that are going to make America great again?' transportation fits perfectly in that little box," Mehrotra said.

On the data front, the U.S. manufacturing index for November hit 53.2 on Thursday, beating consensus estimates of 52.2.

DJ Transportation Average 3-month chart

The index was still about a notch below its all-time intraday high of 9,310.22 from Nov. 28, 2014.