Uber joins the Dow Transports. Here's why it's a curious addition

Published Mon, Feb 26 202411:42 AM ESTUpdated Mon, Feb 26 202412:30 PM EST

Uber is going into the Dow Transports on Monday, marking the first change to the index since Dec. 7, 2021, when Old Dominion replaced Kansas City Southern. Unlike the Dow Industrials, the Dow Jones Transport is not hitting historic highs. The last high was hit in November 2021, and it is now almost 7% below that mark. Under Dow Theory, the Transports should confirm a new high in the Dow Industrials. The theory is that if you were shipping more, which is what the Transports represent, it's a positive sign. There is some question about whether shipping activity is really a good indicator in an era when two-thirds of the economy is services. Uber is a funny add because unlike many of the other index components, it's not really a shipping company. However, Avis is in the Transports and it's just a ground transportation company like Uber. The add likely reflects the Dow Transports index committee's belief that this is a transportation company, even if it just shuttles people instead of packages. This has been a big six months for Uber. Speculation began building that Uber would be added to the S & P 500 after a stellar earnings report Nov. 7, which allowed its inclusion into the S & P. From there until Uber went into the S & P 500 on Dec. 18, the stock rose about 25%. UBER 1Y mountain Uber shares over the past year. This follows a well-known pattern called the S & P inclusion effect. S & P tends to add stocks that have had strong price movements. Stocks going into the S & P tend to outperform before they are added all the way to the inclusion, and often underperform immediately after inclusion. Uber did underperform after its inclusion, but again shot up after its first buyback announcement of $7 billion was made on Feb. 14. A 2012 study by the staff of the Federal Reserve Bank of New York concluded that this "inclusion effect" was real , but there was no permanent effect on value. Not surprisingly, Uber has far outperformed every other Transport stock in the past 12 months, up 133%. The top performer on the Transports, Matson , is up 68%, while Union Pacific , Old Dominion , CSX and Kirby are up around 20% to 30%.