Transports are in trouble.
The iShares Transportation Average ETF (IYT) is on pace for its worst month ever, down a staggering 27% in March. Its second-worst monthly loss was in January 2009, when it fell nearly 17%. The ETF is weighted heavily in the stocks of railroad operators and shipping giants FedEx and UPS, and has positions in most major U.S. airlines.
The group's losses come at a time of heightened uncertainty for travel and transportation companies, which have felt the brunt of the stock market pain as the coronavirus pandemic sparked market declines not seen since the 2008 financial crisis.
"Just in the last 20 to 30 days, the Dow Jones Transports, along with many other indices, have broken the longer-term uptrends that have been intact since the bear market initially bottomed back on March 6th of 2009, so, this is an important development," Mark Newton, founder and president of Newton Advisors, told CNBC's "Trading Nation" on Friday.
"It means that the next one to two years likely [are] going to see further losses for many of these, I just don't think it's going to happen in a straight line," he said.
The first leg down is nearly over, however, Newton said, adding that "things like the transports ... are getting close to levels that traders and short-term-type investors would want to consider buying dips." He said he couldn't rule out "a bounce in the months to come."
For the IYT, which closed at $123.33 on Friday with a 3% loss, those levels would fall around $114 to $120, the chart analyst said. The Dow transports, meanwhile, probably won't go below 6,000 "on this first move down," he said. That group fell nearly 3.5% to just below 6,838 on Friday.
"It'll take a little bit more, I believe, before we're in the clear, but I do think that we're very, very close," Newton said. "We are very oversold, people are clearly fearful, and, historically, that's been a good time. So, the best advice I can say is to consider buying small and simply add a little bit on pullbacks, and I think we are on the verge of a time when we can at least have a decent bounce off these lows."
"We've retraced about 50% of the entire 11-year uptrend literally in the last two months," Newton added. "A very big move in a short period of time ... does present opportunity for those that like to buy dips, but for those that are intermediate-term focused, one would certainly want to look at selling into this rally over the next few months. And for IYT, a move from 120, for example, up to 160, to 170, would certainly be something to sell into."
As markets grapple with historic levels of volatility and uncertainty, Steve Chiavarone of Federated Hermes said the transports were susceptible to serious weakness by default.
"We expect transports, as a cyclical sector tied to economic growth, are going to really reflect that severe weakness in the short run. But you're right: This shouldn't last forever," Chiavarone, a vice president, portfolio manager and equity strategist at his firm, said in the same "Trading Nation" interview.
Commercial travel and transportation will probably bounce back before leisure travel and transport, Chiavarone said, but both would "be a sign that the pandemic is passing" and that economic activity is on the rise.
"It's something we're watching very closely. But I do think that you could see the lows be lower here than what we're accustomed to seeing in an economic slowdown given this unprecedented kind of overnight shutdown," the strategist said.
His firm's "best thinking" was that the number of coronavirus infections could peak sometime during the second quarter, and that the back half of the quarter could start to see some relief in markets.
"I don't think it's completely over at that point, but that's our hope," he said. "From an investment perspective, though — and this is going to be difficult in the face of what could be some really difficult economic data — is that the market is likely to bottom before the economy bottoms. And it's probably likely to bottom before the virus scare is over."
Chiavarone expects stocks to bottom sometime after new infections peak, but before they sink to zero.
"I think that's one of the things that's going to be very difficult for investors here," he said. "If and when the market rebounds, which it should at the end of this, it's likely going to do so at a point of maximum pain when you really don't want to buy and before the economic data and the virus data, for that matter, really confirms your comfort. And so that's why I think you've got to be vigilant. Try to average in. You're not going to necessarily get the bottom, but if you can buy slowly and average in over time, you'll capture a good portion of that recovery."