U.S. Railroads Index Falls Most Since 1989 on Economy (Update3) 
By Angela Greiling Keane

Oct. 2 (Bloomberg) — Norfolk Southern Corp. paced declines among U.S. railroads, dragging a benchmark index to the biggest intraday drop in 19 years on concern that falling factory orders and commodity prices herald a drop in freight volume.

The Standard & Poor’s 500 Railroads Index, consisting of the four largest U.S. carriers, plunged 10 percent, the most ever based on Bloomberg data going back to Sept. 11, 1989.

A slowing U.S. economy may mean fewer shipments of coal, farm products and other commodities that have boosted carriers’ revenue. Corn and soybeans dropped on the Chicago Board of Trade on speculation that a slowing global economy will hurt demand for food, feed and fuel.

“What you’re seeing is a selloff across the board of commodity stocks and it’s affecting the railroads, which make so much money from that business,” saidJonathan Vyorst, senior vice president at New York-based Paradigm Capital Management Inc., which oversees about $1.7 billion.

Today’s decline wiped out most of the railroad index’s gain this year. August U.S. factory orders dropped 4 percent, and first-time claims for jobless benefits rose.

“It’s people still fearful of the economy right now,” said Jason Seidl, a Dahlman Rose & Co. analyst in New York, referring to the drop in share prices.

Investment Redemptions

Redemptions by hedge-fund investors also are weighing on railroad stocks, Seidl said. Hedge funds including TCI Fund Management LLP are among the biggest stockholders of U.S. railroads, and they’ve been forced to sell shares as investors cash out, he said.

The S&P Railroads Index had climbed 15 percent this year through yesterday. The 2008 advance was 3.5 percent after New York trading closed today.

Norfolk Southern, the fourth-largest U.S. railroad, slid $8.40, or 13 percent, to $56.64 in New York Stock Exchange composite trading.

Burlington Northern Santa Fe Corp., the second-biggest U.S. railroad, fell $6.49, or 7.3 percent, to $83. Warren Buffett‘s Berkshire Hathaway Inc. is the carrier’s largest shareholder, with a stake of more than 18 percent as of June 30, according to Bloomberg data.