Dramatic stock market fluctuations at car rental company Avis Budget have sent shockwaves through one of America’s oldest financial benchmarks this month.
The rental car company’s stock experienced a catastrophic 70% drop across Wednesday and Thursday, marking the steepest two-day fall in the company’s history. This crash followed an extraordinary surge that saw shares increase more than four times their value, typical of so-called “meme stock” trading patterns where social media drives investment decisions rather than company fundamentals.
“Avis is a mature company – it’s not in the AI business, it’s not going to cure cancer,” explained Matthew Maley, chief market strategist at Miller Tabak. “So it’s just chasing a short squeeze and it’s kind of ridiculous. It shows there’s money sloshing around the system looking for places to go.”
The wild price swings created unexpected consequences for the Dow Jones Transportation Average, a financial benchmark dating back to 1896 that many consider an indicator of economic health. This transportation index climbed as much as 33% before tumbling back down alongside Avis’s decline, recording its steepest single-day drop since March 2020.
The situation illustrates fundamental flaws in how price-weighted indexes operate, according to market experts. Despite Avis’s current $8 billion valuation being dwarfed by transportation giants like Uber, United Parcel Service, Norfolk Southern and Delta Air Lines worth tens of billions more, the rental car company’s stock price movements dominated the entire index.
Price-weighted calculations add up individual share prices rather than using total company values like more common market-capitalization-weighted indexes such as the S&P 500. This methodology allows smaller companies to have outsized influence on the benchmark’s performance.
“If you look at Avis, it highlights the sorts of issues with weighting schemes,” noted James St. Aubin, chief investment officer at Ocean Park Asset Management. “On a market capitalization basis, I think it constitutes maybe 1% of the index. But if you look at the price index, it’s closer to 20% because the share prices are higher.”
By contrast, the S&P Transportation Select Industry FMC Capped Index, which tracks the same sector using market-capitalization weighting, showed minimal movement. That index rose just 1.8% Thursday after declining 2.4% Wednesday. S&P Global, which maintains both the Dow Jones and S&P indexes, declined to provide comment.
The Avis stock surge resulted from what traders call a short squeeze, where investors purchasing heavily shorted stocks drive prices upward, forcing pessimistic investors to buy back shares at increasingly higher prices to cover their positions. Short selling involves borrowing shares to sell them, hoping to repurchase them later at lower prices for profit.
According to LSEG data, two hedge funds – SRS Investment Management and Pentwater Capital Management – control approximately 70% of Avis Budget’s available shares. Pentwater Capital’s recent stake increase reduced the number of shares available for trading. Individual retail traders then jumped in, creating meme-stock momentum that generated billions in losses for short sellers during April, data analytics firm Ortex reported.
The Roundhill Meme Stock ETF, an actively managed fund targeting stocks driven by social media buzz rather than business fundamentals, listed Avis Budget as its top holding with a 6.44% weighting.
These dramatic price movements have prompted analysts to question whether the Dow transportation index provides meaningful insights about the sector or broader U.S. economy, especially amid oil price spikes from Middle East conflicts.
Unlike the S&P transportation index, which supports several funds including the $1.8 billion iShares Transportation Average ETF, no exchange-traded fund tracks the Dow transport benchmark, St. Aubin observed. “I think most investors aren’t looking to invest based on a price per share weighting scheme,” he said.
The Dow transportation index stems from Dow Theory, a century-old investment framework suggesting that coordinated movements in transportation stocks and the Dow Industrial Average can confirm or contradict trends in industrial activity. However, some experts question this theory’s modern relevance.
“I don’t really think the Dow Theory is that operative, so I would just say God bless you if you follow it,” stated Jay Hatfield, chief executive and chief investment officer at Infrastructure Capital Advisors. “I think it’s anachronistic.”
