Mega acquisition by Berkshire Hathaway not enough to push stocks higher Tuesday. Normally, merger activity provides a positive tone, but negative comments about the chip sector at Morgan Stanley and disappointing earnings from UBS (UBS) have left stocks lower. Overseas markets are also lower with markets in Europe suffering from a decline in bank stocks.

Overall, traders are a bit cautious ahead of the FOMC statement Wednesday and the always important jobs report on Friday.

Warren Buffet made a huge statement about his belief in an economic recovery. Mr. Buffet’s Berskshire Hathaway (BRK.B) will purchase railroad Burlington Northern (BNI) for $44 billion. The deal values BNI shares at $100, which will be paid in cash and Berkshire shares. BNI shares are up nearly 30 percent on the news with BRK.B shares up 1.5 percent to a price above $3,300. Berkshire’s board also its approval to split the “B” shares 50-to-1. This move is a big bet by the world’s most renowned investor, so it says a lot about his view of the future.

Unfortunately, the chip sector, another very important sector of the economy, is seeing declines this morning. Morgan Stanley cut Intel (INTC) shares to “Equal-Weight” from “Overweight” and lowered the entire sector to “Cautious” from “Attractive.” Morgan is concerned about rising inventory levels. Intel shares are down about two percent with the Semiconductor HOLDRs (SMH) also off two percent.

UBS shares are off nearly 7 percent after the bank announced disappointing earnings results in the quarter. This news was a surprise given the strength seen in European competitors Credit Suisse (CS) and Deutsche Bank (DB) when they reported. Nonetheless, CS shares are down nearly 3 percent with DB off 4 percent. Financials in the U.S. are suffering as well with the Financial Select Sector SPDR (XLF) down 1.5 percent in early trading.

Johnson & Johnson (JNJ) announced a restructuring plan this morning that will result in the loss of 7,000 jobs globally. The move is expected to save the company nearly a billion dollars in 2010. JNJ shares are higher on the news, up nearly one percent, to a price near $60. JNJ shares have not been able to participate in the gains this past year with the stock sporting a three percent loss in the past 52-weeks.

Economic news Tuesday isn’t as heavy, though traders are interested in the motor vehicle sales report. Ford (F) reported stronger than expected results this week and the hope is that auto sales will show strength after seeing weakness in September following end of the “cash for clunkers” program. Traders did get good news about same-store sales this past week with both the Goldman/ICSC report and the Redbook release showing strength. The FOMC began its two-day meeting this morning and this will culminate in a statement from the committee Wednesday afternoon.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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