Which Will Fail First, Treasury Bonds or Transportation Stocks?

NEW YORK (TheStreet) -- We are finally getting past all the bad weather-related news from the first quarter of the year. The stock market and bond market are firmly higher for the year to date.

Within the S&P 500 one of the leading sectors are transportation stocks. Using the iShares Transportation Average ETF (IYT) as a proxy, through Tuesday's close it had a total return of 11.03%. Not bad considering the polar vortex shut many roads down for days at a time to start 2014.

The bond market also has had quite a good start this year. The iShares 20+ Year Treasury ETF (TLT) is up an almost identical return of 11.87% so far. Most pundits expected that the rising interest rate trend from 2013 would have continued this year. On Dec. 31 the 10-year Treasury stood at 3.05%, while the 30-year Treasury closed at 3.96%. Recently, the rates were 2.58% and 3.41%, respectively.

As investors know, there is a direct, inverse relationship between interest rates and bond prices. Therefore, these lower rates mean bond prices are higher.

While these two sectors have almost equal returns, something seems amiss to me as a student of the market. Usually Transport stocks go up in an expanding economy while interest rates fall (higher bond prices) in an economy that's contracting. These factors are not congruent with the returns we are experiencing so far. One would believe that one of these sectors is almost certain to fall while the other could continue to expand. So which is it?

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