The three major indices hit new historical highs again, while the Dow Jones Transportation Index's weakness raises concerns about a "bull trap."

According to the Zhitong Finance APP, U.S. stocks saw strong performance again on Friday, with the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite Index all reaching new historical highs, as market sentiment remained high. Even the long-lagging small-cap stock index, the Russell 2000 Index, set a new historical closing high for the first time in nearly four years on Thursday. However, the Russell 2000 experienced a slight pullback on Friday.

In contrast, during this wave of broad market gains, the Dow Transportation Index, an important index, weakened against the trend. As of now, this index has fallen nearly 2% year-to-date, significantly diverging from the overall market trend, signaling potential risks in the market.

The Dow Transportation Index is composed of 20 leading transportation companies, including airlines such as Delta Air Lines (DAL.US) and Southwest Airlines (LUV.US), railroad operators Union Pacific (UNP.US) and CSX Transportation (CSX.US), trucking companies Old Dominion Freight Line (ODFL.US) and J.B. Hunt Transport Services (JBHT.US), as well as delivery giants FedEx (FDX.US) and United Parcel Service (UPS.US). In February 2024, Uber (UBER.US) will replace JetBlue Airways (JBLU.US) in the index, symbolizing its representation of new economic transportation models.

According to Dow Theory, the Transportation Index and the Industrial Index must rise in tandem to confirm that the market is in a healthy expansion phase. If the two diverge, it is seen as a precursor to weakening economic momentum or even recession.

Tom Essaye, author of The Sevens Report, stated in Friday's market briefing: "If both rise together, Dow Theory considers this a bull market signal, indicating the economy is in an expansion phase. However, if there is a divergence, it means the economy is losing momentum and is at risk of recession."

Essaye warned that the current weakness in the Transportation Index may indicate that the recent rise in the overall market is merely a "bull trap." He pointed out that the Transportation Index remains highly sensitive to the modern digital economy, especially in the e-commerce supply chain, where FedEx, UPS, and railroad companies play key roles, thus the index still holds significant economic predictive value.

Adam Turnquist, Chief Technical Strategist at LPL Financial, noted in a research report that global growth slowdown and uncertainties brought by tariff policies are putting pressure on the transportation sector, and these macro risks may eventually spread to the broader market.

He stated that the core issue at present is whether the weakness in the Transportation Index is merely a temporary adjustment or signals that the recent breakout of the Dow Jones Industrial Index is a "false breakout," meaning the market's rise lacks fundamental support.

Within the transportation sector, FedEx is seen as an industry "barometer." The company's earnings report released after the market closed on Thursday showed solid performance, and its stock price rose over 2% on Friday, interpreted by the market as a positive signal.

Raphael Thuin, Head of Capital Markets Strategy at Tikehau Capital, stated: "Transportation stocks are the most sensitive to economic changes, and if market rotation continues, transportation stocks may become the main force in the next phase of the rise." However, the positive news from FedEx did not drive the entire sector to rebound. On Friday, the Transportation Index still fell slightly, with United Parcel Service's stock price dropping by 1%. Analysts pointed out that unless more transportation companies report strong earnings and optimistic guidance, the current market rally may be difficult to sustain, and the end of the year may verify whether this round of increase is merely a "bull trap."