U.S. stock market gets upbeat signal from Buffett

By Kate Gibson, MarketWatch

Last Update: 4:32 PM ET Nov 3, 2009

NEW YORK (MarketWatch) -- 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 (BRK.B)(BRK.A) 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. Read full story

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%. Read more about transportation stocks