By Kate Gibson
Warren Buffett's blockbuster deal for Burlington Northern Santa Fe 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," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.
Early Tuesday, Buffett's Berkshire Hathaway Inc. (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 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 picking up a railroad "unless you thought the economy was going to do better and that energy prices are going to go higher," Hogan said.
Word of the deal boosted the Dow Jones Transportation Average (DJT), up 4.4% lately, as well as individual shares of other railways.
Shares of Union Pacific Corp. (UNP) traded up 6.5%, while CSX Corp. (CSX) advanced 6.3% and Norfolk Southern Corp. (NSC) gained 3.8%. As for Burlington Northern, the shares rallied more than 28%.
However, Buffett's move did not translate into broad market gains -- something that Hogan chalked up to portfolio managers looking to lock in gains as the year winds down.
"The investment climate has changed to one that finds good news met with sellers," said Hogan.
About 60 points off early lows, the Dow Jones Industrial Average (DJI) was recently down 27.43 points at 9,762.01. Also lower, the S&P 500 Index (SPX) fell 1.44 points at 1,041.44 as the Nasdaq Composite Index (RIXF) declined 4.37 points to 2,044.83.