Afternoon Review: Buffett, Transports, Semiconductors

S&P 500: +2.53 (+0.24%)

Markets swung between gains and losses before ending higher. Helping push stocks higher was the fact that the dollar pared early gains. The dollar’s losses also resulted in crude oil bumping up to just under the $80 level.

Traders’ may be hesitating to push stocks into positive territory as they await several economic releases later in the week including the monetary policy announcement from the Fed tomorrow, and the labor report on Friday – both items could potentially give investors a better view of the pace of ht economic recovery.

Berkshire Hathaway’s acquisition of Burlington Northern Santa Fe was the top story of the day, pushing railroad companies and other transportation stocks higher. Berkshire’s Chairman and CEO Warren Buffett paid a 30% premium for the railroad.

Believers in the Dow Theory may make a bullish argument following today’s upward action in the Dow Jones Transportation Index. The Dow Theory says that transportation companies move what industrials are making and, thus, serve as a good leading indicator. Others, however, argue that semiconductors are better indicators of future market direction.

Within the technology universe, economically sensitive semiconductors tend to lead the pack. Just as some technicians watch the Dow Jones Transportation Index for indications of future market movements, others refer to the Philadelphia Semiconductor Index (SOX). The SOX has slipped this week on unfavorable research notes from Morgan Stanley and Goldman Sachs, both of which citing higher expectations following strong third-quarter earnings and, thus, greater downside risk.

--

Peter J. Lazaroff, Investment Analyst