Railroad stocks drop on slowing economy concerns

Floor traders at the New York Stock Exchange express the uncertainty of the market with their body language during trading early Tuesday.

NEW YORK -- Railroad companies were some of the year's best-performing stocks, but fears that the economy won't bounce back in the second half prompted some investors to sell even them on Tuesday, according to a wire service.

The Standard & Poor's Rail Index dropped 4.5 percent to 547.89 points after the latest economic report showed retail sales fell in February for the first time since November 2000, in a sign that waning consumer confidence is crimping spending.

Though the report increased expectations the Federal Reserve will cut interest rates at its meeting on March 20, some investors were concerned it will not be enough to prevent the U.S. economy from stalling.

"People are questioning whether there there will be a U- or an L-shaped recession," said Gregg T. Summerville, a money manager with Columbus, Ind.-based Kirr, Marbach & Co. which oversees $500 million in assets. A long recession "would put pressure on earnings into the second half."

CSX (NYSE:CSX - news) fell $2.31, or 6.96 percent, to $30.86 and Union Pacific (NYSE:UNP - news) dropped $1.46, or 2.6 percent, to $54.69 in afternoon trading on Tuesday. Norfolk Southern (NYSE:NSC - news) tumbled $1.09, or 6.29 percent, to $16.25 and Burlington Northern Sante Fe Corp. (NYSE:BNI - news) slid $1.25, or 4.22 percent, to $28.35.

Still, even with Tuesday's declines, railroad stocks retained gains on the year to date.

Norfolk Southern is up 30.3 percent for the year, CSX Corp. up almost 28 percent, Union Pacific up 10.6 percent and Burlington North up 4.6 percent.

But those gains may also have prompted selling, investors said, as shareholders decided to take cash off the table rather than risk a prolonged economic downturn.

"In a broader market sell-off people sell their winners," said Tim Ghriskey, a money manager at Dreyfus Corp., which oversees $138 billion in assets.

To be sure, railroads were not the only transport stocks to take a hit on Tuesday. All but two of the 60 stocks in the Dow Jones transportation average fell on concerns of a slowing economy.

Money managers though remained upbeat.

"There is increased recognition the economic environment is deteriorating to the point," said Eric Barden, a portfolio manager with First Austin Capital Management Inc. which oversees $50 million. "But my guess is that this is a short-term move and people will begin to discount the economic recovery precipated by a Federal Reserve aggressively cutting rates."

The Fed has cut interest rates by 1 percent so far this year, and is expected to cut by another 50 basis points at its meeting on March 20.