Dow transportation stock index hits record high, but all alone

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It took locomotive power, but the Dow Jones transportation stock index today became the first of Wall Street’s major market gauges to hit a new high -- surpassing its old peak set last summer.

The 20-stock index rose 105.21 points, or nearly 2%, to close at 5,492.95. That topped the previous record close of 5,446.49 on July 19.

The transports had taken a stab at the old record on May 19 but fell short. This time they made it.

The much-more-famous Dow Jones industrial average, which gained 1.7% to 12,604.45 today, still is well below its record closing high of 14,164.53, reached on Oct. 9. The industrials would have to rally another 12.4% to knock out the old peak.

The transportation index historically has been viewed as a good gauge of how the economy is performing and where it’s headed. 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, the transports may be telling a good tale about the export-related part of the economy, not the rest of it, as I noted in this previous post.

The railroads, including Burlington Northern Santa Fe, CSX Corp. and Union Pacific Corp. have been the stars in the index this year. Despite soaring fuel costs, some truckers, notably Landstar System Inc., also have been hot stocks.

The airlines, meanwhile, have been a drag on the index. Many, including AMR Inc. and Continental Airlines Inc., have been hitting multiyear lows in recent weeks.

How can the Dow transports index hit a record high with the airlines flying barely above treetop? That’s the magic of a price-weighted index: Its lowest-priced stocks (in this case, the airlines) matter less and less as they decline. The highest-priced stocks in the index (in this case, the railroads) have the greatest effect on its swings, and more so as they continue to rise.

A good reason for the bulls to pray the rails don’t begin to think about stock splits.

Carlos Chavez/Los Angeles Times