The S&P 500 hit a new all-time high again, signaling that the market pullback is over. It was indeed a slight pullback rather than a major correction, as the S&P 500 dipped less than 6% before making this new high.
Stocks turned bullish following the April CPI of 3.4%, a drop from 3.5% in March. Investors are hopeful that inflation pressure is easing and that the Fed is moving toward a rate cut once more.
I believe that stocks are in for another bull leg, but I am not sure how much and how long it can run before another pullback or correction occurs. I don’t ‘buy the sell in May and go away’ adage, but it pays to be watchful about the markets—for traders to exit or take profits and long-term investors to pick up bargains.
Warren Buffett, on the other hand, has been a net seller of stocks over the past several quarters. The 13F report for 1Q24 is out for Berkshire Hathaway, as it has to disclose its holdings in public securities.
Berkshire sold a net $16 billion worth of stock in 1Q24, most of it due to a large block of Apple shares, shedding 13% of its holdings worth $21 billion.
Buffett explained during the AGM that he sold Apple shares for tax considerations, believing that taxes are going to increase to pay for the rising government deficit.
He added that there is no change to Apple’s fundamentals and said it was a better business than American Express and Coca-Cola, which Berkshire has owned for a long time.
A peculiar transaction is his reduction in Chevron holdings by 2%, especially since in the previous quarter, Berkshire had raised its holdings by 14%. My guess is the trimming is to readjust the exposure to Chevron and not a precursor of a bigger sale to come.
Meanwhile, he has sold all or most of his stakes in Paramount and HP Inc.
The mystery stock that Berkshire Hathaway has been building its stake in has finally been revealed, and it is Chubb, a leading property and casualty insurer.
The Buffett effect is real. Once the cat was out of the bag, investors jumped onto Chubb shares, driving them 8% higher during after-market hours.
This is why Berkshire seeks permission to keep the stock’s identity under wraps while building its position.
But even this $7 billion Chubb purchase is not sufficient to offset the sale of shares.
Berkshire is sitting on record cash levels, and Buffett acknowledged that the cash pile is likely to grow further to about $200 billion by the end of the quarter. This may mean that more selling is to come.
All this selling occurred while the S&P 500 was up almost 10% in the first quarter. While some investors interpret this as Buffett being bearish on the market and taking profits, I believe it is unlikely because Buffett doesn’t time the market. It’s more a reflection of his conservative investing style and the constraints imposed by the size of his portfolio. As the market rises, it becomes harder for him to find a wonderful business to buy at a fair price, and he can’t buy smaller companies when he has billions to deploy. Thus, it is likely that he can only be a net buyer during a market crash. That day will come, but we shouldn’t worry about it now.
