Rev that motor: Dow transports index tops 2007 peak

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This could be a critical day for the bulls on Wall Street: The Dow Jones transportation stock index traded at an all-time high earlier in the session, making it the first of the U.S. market’s major indexes to surpass its 2007 peak.

The 20-stock index rose as high as 5,536, topping the record closing high of 5,446.49 reached on July 19 of last year -- just before the first big market swoon sparked by the mortgage-market meltdown. But the rally has been fading over the last hour, and the Dow transports index at about 11:30 a.m. PDT had pared its gain to 51.91 points, or 1%, to 5,420.87.

Still, the transports have left the Dow Jones industrials in the dust this year. The industrials index, up 50.89 points, or 0.4%, to 13,037.69 at 11:30 a.m., remains well below its record closing high of 14,164.53 set on Oct. 9.

Historically the Dow transports index has been viewed as a good gauge of how the economy is performing and whether it’s likely to accelerate or decelerate. The simplified view: If railroads, truckers, shipping lines and other companies that move goods from Point A to Point B are doing a decent business, the economy must be relatively healthy.

But this time around many investors are having a hard time transferring excitement about the transports index to the broader economy. As I’ve noted before (see this post), the stock market today really is two markets: Many companies whose fortunes are tied to the U.S. consumer are struggling, but firms whose businesses are tied to robust global demand for commodities and industrial equipment are rolling in dough.

Many transportation companies are in the latter camp. Railroads such as Union Pacific, for example, are key haulers of agricultural commodities, so they’re big beneficiaries of the global food boom. Many marine shippers, such Overseas Shipholding Group, are profiting from China’s still-strong appetite for oil, iron ore and other industrial commodities.

What the transports are demonstrating ‘is that this is much more of a global economy’ than in the past, says Sam Stovall, investment strategist at Standard & Poor’s in New York.

What’s particularly remarkable about the surge in the Dow transports index this year (it’s up about 18% since Dec. 31) is that the advance has occurred even as the companies’ cost of fuel has rocketed. That has been devastating for airlines, but not for the rest of the industry.

So the question is: Are the transports really telling us about better times to come -- or are investors just in the hop-the-bandwagon phase of the spring rally, rushing into the market’s hottest sectors for lack of better ideas?