- Market Resilience Amid Volatility – Despite Friday’s sharp selloff, the S&P 500 remains just 2% off all-time highs, demonstrating underlying strength despite concerns over inflation, economic data, and geopolitical uncertainty.
- Key Events to Watch – Nvidia’s upcoming earnings report will be a major test for the AI sector and the broader market, while the Fed’s preferred inflation gauge (PCE) is expected to show a seven-month low, potentially easing policy concerns.
- Buffett’s Cautious Stance – Berkshire Hathaway’s annual shareholder report was released last weekend. Record cash holdings reflect Warren Buffett’s conservative approach in a high-valuation market, yet his over-all portfolio remains mostly invested in equities, reinforcing his long-term confidence in the U.S. economy.
Looking Back
Last week ended on a sour note, with Friday’s selloff marking the largest daily loss of the year. The S&P 500 finished the week down about 2%.
That said, it is important to keep perspective. Just last Wednesday, the S&P 500 was at an all-time high, and even after Friday’s pullback, it remains only 2% off those levels. For the most part, the index has been range-bound since the November highs, consolidating gains after a strong run-up.
Market concerns persist, including inflationary pressures, slowing economic data, and ongoing geopolitical uncertainties. Friday’s price action was also influenced by options expiration, which tends to amplify volatility. Additionally, with key news events unfolding over recent weekends, many traders opted to reduce risk heading into the close. Expect this to be a factor for Friday markets for the near future.
Economic data last week was mixed, with disappointing home sales, a sharp decline in consumer confidence, and long-term inflation expectations hitting their highest level since 1995.
On the positive side, we saw a fourth consecutive week of declining yields on the 10-Year Treasury, now back near 4.4%. A key driver of this move has been speculation around the so-called “Mar-a-Lago Accord,” which, if enacted, could have broad implications. This could include debt restructuring by swapping into ultra-long term bonds to ease the national debt burden and a weaker dollar strategy to enhance trade competitiveness.
In addition, the traditional unofficial close to the fourth-quarter earnings season arrived with Walmart’s report last week. The retail giant’s results were underwhelming, including a warning for the first year-over-year decline in quarterly profit in three years. However, looking at earnings season as a whole, it has been one of the strongest in recent years, potentially the best in over three years.
Looking Ahead
Washington, D.C. will continue to be a dominant force in shaping market sentiment.
All eyes will be on Nvidia’s earnings report Wednesday, which will serve as a key test not just for NVDA itself but for the broader AI sector and the market. The “Magnificent 7” stocks have lagged so far this year, so this report could be pivotal.
Despite rising long-term inflation expectations, the Fed’s preferred inflation measure (PCE) is expected to hit a seven-month low this week, something that could ease concerns and support the case for rate cuts later this year.
Another emerging topic in the news is the newly identified HKU5-CoV-2 virus, which could have implications for the healthcare, travel, and consumer sectors.
Warren Buffett’s Latest Thoughts
Berkshire Hathaway’s annual shareholder letter from Warren Buffett was released over the weekend—an annual must-read for investors. Some key takeaways included record cash holdings. Interestingly, this contrasts with professional investors holding their lowest cash levels in 15 years. Buffett’s cautious approach in a market with record or near-record valuations, where compelling investment opportunities are scarce, is consistent with his legendary investing philosophy.
To be fair, while Berkshire Hathaway’s cash holdings now exceed their publicly disclosed equity holdings, the total equity exposure does not include non-quoted equities. Buffett remains a strong advocate of the stock market and the U.S. economy, and his overall portfolio still has greater equity exposure than cash.
Closing Thoughts
Despite some concerning economic headlines, stock and bond markets have demonstrated resilience. However, ongoing geopolitical and economic uncertainty is likely to contribute to continued market volatility. While fluctuations can be unsettling, they also create opportunities for disciplined, long-term investors.
In this environment, maintaining a balanced approach—staying invested, diversified, and disciplined—remains the best strategy for navigating the markets. As always, we’re here to provide guidance and support as you plan for the future.
if you have any questions, please don’t hesitate to reach out to us at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust.