Uber's Inclusion in Dow Transports Raises Questions Amid Market Impact

Key Takeaway

• Uber's addition to the Dow Transports marks a significant shift, reflecting its growth and evolving view of transportation sectors.
• Despite initial post-S&P inclusion underperformance, Uber outshone other Transport stocks with a 133% increase over 12 months.
• The move raises questions about the relevance of traditional shipping activity as an economic indicator in today's service-dominated economy.

Uber's Inclusion in Dow Transports

Uber's addition to the Dow Transports on Monday marks the first change to the index since December 7, 2021, when Old Dominion replaced Kansas City Southern. The Dow Transports, unlike the Dow Industrials, are not hitting historic highs, currently almost 7% below the last high reached in November 2021. According to Dow Theory, the Transports should confirm a new high in the Dow Industrials, indicating positive shipping activity. However, there are questions about the relevance of shipping activity as an economic indicator in a service-dominated economy.

"Uber's addition to the Dow Transports is interesting as it's not a traditional shipping company. However, the index committee likely views it as a transportation company, similar to Avis, which is also part of the index," noted an industry expert.

Uber's Performance and Market Impact

Uber has experienced significant growth in the past six months, with speculation mounting about its potential inclusion in the S&P 500 following a strong earnings report on November 7. The stock rose approximately 25% from the speculation until its actual inclusion in the S&P 500 on December 18. The S&P inclusion effect, where stocks tend to outperform before inclusion and underperform immediately after, was evident with Uber. However, a subsequent buyback announcement of $7 billion on February 14 led to another surge in Uber's stock price.

A study by the Federal Reserve Bank of New York in 2012 confirmed the inclusion effect but noted that there was no lasting impact on value. Despite underperforming initially after S&P inclusion, Uber has outperformed all other Transport stocks in the last 12 months, with a remarkable 133% increase. In comparison, other top performers in the Transports, such as Matson, Union Pacific, Old Dominion, CSX, and Kirby, have seen more modest gains ranging from 20% to 68%.