Bears & Buffett

There are a variety of reasons behind the most recent market sell-off. Last week, in our opinion, it became clear that the Fed is behind in its interest rate policy. We’ve already written about this many times, so there’s no need to rehash it. However, Friday’s?non-farm?payrolls and the uptick in the overall unemployment rate?were worse than we anticipated, providing further evidence that the economy may be slipping into, or already in, a recession.

Over the weekend, two events transpired to accelerate US stock sales. First, Warren Buffett’s Berkshire Hathaway reported earnings and disclosed their stock holdings. Many were shocked to learn that Warren had sold down his Apple holdings by nearly 50%. Prior to this report, Apple represented nearly 40% of Berkshire’s portfolio. We believe this action spoke volumes regarding Warren’s outlook on valuation and tech, and we agree with his sentiment.

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In other news, the Bank of Japan raised rates over the weekend, which hit Asian markets and disrupted global currencies. This ripple effect is also creating market uncertainty worldwide.

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Market selloffs are never fun to experience, as it often feels like the ‘stairs up, elevator down’ scenario. Unfortunately, it is part of the process. Markets have been up considerably this year, and while today’s open was ugly, it is still far above the Jan 1 start as well as the 2023 start. The point is, we’ve come a long way.

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We’re watching the action closely and never in our wildest dreams did we suspect our words of caution to come to fruition so quickly. That said, we think the Fed now has a tremendous amount of firepower, making it hard to get too bearish in the face of that. At this point, I don’t feel this is the end of the bull market but rather a significant sell-off that, if and when eventually repaired, may embolden the bulls and give them even more confidence. It reminds me of the nasty sell-offs we used to have in the 90s leading up to the great tech bubble burst of 2000. At that time, the emotion had moved from fear to greed before the real top set in. When sharp declines played out, folks wanted to jump in with both feet, buying weakness. This led to incredible risk and irrational exuberance. At this point, we feel we’re far from that greed and still in the fear camp. For psychology to change, not only do we need to see sell-offs, but we also need to see them repaired. It will be interesting to see how this plays out.

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We think the keys to these declines are always the same: remain patient, remain unemotional, and we’ll be monitoring it each step of the way.

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Until next time

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~ Quint

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