MARKET SNAPSHOT: U.S. Stock Market Gets Upbeat Signal From
Buffett
By Kate Gibson
Berkshire Hathaway Inc.'s blockbuster deal for Burlington Northern Santa Fe
Corp. should offer a positive jolt to the broader U.S. stock market, which tends
to follow the lead of the transportation sector.
"Rails in particular, but transportation in general tend to lead the market,"
according to Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.
Early Tuesday, Berkshire Hathaway (BRKB)(BRKA) said it would spend $44 billion
to buy out the rest of railroad operator Burlington Northern Santa Fe (BNI) that
it didn't already own. .
The acquisition is also a strong endorsement by Berkshire's Warren Buffett of
the view that the U.S. economy is on the road to recovery, said Art Hogan, chief
market strategist at Jefferies & Co. A buyer would not pick up a railroad "
unless you thought the economy was going to do better and that energy prices are
going to go higher," he added.
"This is Buffett putting his stamp of approval on this bull market and the
recovery," said Howard Ward, chief investment officer for growth equities at
GAMCO Global Growth Fund.
Beyond placing a large bet on an economic turnaround, the acquisition makes
sense, given rails offer a more efficient means compared with trucks in shipping
goods, Hogan and Fitzpatrick said.
"There's a secular trend of more and more merchandise being moved by rails,
and a limited number of players. If you're a customer that wants to ship you
have limited options," Fitzpatrick pointed out.
"As energy prices get higher and manufacturers want to ship goods, the value
proposition presented by railcar transportation far exceeds that offered by
truck traffic," observed Hogan.
Word of the Burlington deal boosted the Dow Jones Transportation Average (DJT)
, up 5.3% for the session, as well as individual shares of other railways.
Shares of Union Pacific Corp. (UNP) climbed 7.9%, while CSX Corp. (CSX)
advanced 7.3% and Norfolk Southern Corp. (NSC) gained 5.5%. Burlington Northern
shares rallied nearly 28%. .
However, Buffett's move did not translate into broad market gains -- something
that Hogan chalked up to portfolio managers looking to take profits as the year
winds down. "The investment climate has changed to one that finds good news met
with sellers," he said.
Consumer staples fronted declines and industrials led the limited gains as the
Dow Jones Industrial Average (DJI) declined 17.53 points, or 0.2%, to end at 9,
771.91. The S&P 500 Index (SPX) added 5.53 points, or 0.2%, to 1,045.41 and the
Nasdaq Composite Index (RIXF) gained 8.12 points, or 0.4%, to 2,057.32.
(END) Dow Jones Newswires
11-03-091632ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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