Finance

As fears of an American recession spread, Japan’s markets took another beating. On August 5th the Topix plunged by 13% in its worst performance since 1987. The index is now almost a quarter below its peak, reached barely a month ago. The yen, meanwhile, is snapping back: it is up 12% from less than a month ago, when it was at its weakest in 37 years. These sharp moves carry implications not just for Japanese investors and firms. The country’s financial heft means that they could become a source of further volatility in nervous global markets. More

As we explain in our analysis of Pennsylvania’s economy, strong economic fundamentals will not be sufficient to propel Kamala Harris to the White House. Still, the health of the economy in the swing states should give Democrats some confidence in the final months of campaigning. Most have performed well in recent years relative to national benchmarks. More

Kamala Harris has all but erased Donald Trump’s polling lead in America’s six swing states, which is testament to the excitement generated by her late entrance into the presidential race. On August 6th she will speak at a rally in Pennsylvania, the most crucial of the swing states, alongside her new running-mate, who may well be Josh Shapiro, the state’s governor. Judging by her past speeches, she will warn that Mr Trump wants to ban abortion, is a threat to democracy and only cares about the rich. Underlying it all will be another message—that the American economy is the world’s strongest, and that the country remains a place of opportunity. More

It’s a July for the record books.
State Street Global Advisors finds inflows into exchange-traded funds hit $127 billion. Not only was it the best July ever, but the firm’s head of SPDR Americas research notes it is also the second-largest monthly inflow ever.

“Part of it is just the market,” Matt Bartolini told CNBC’s “ETF Edge” on Thursday. “We see investors deploy cash from the sidelines. A lot of cash was built up over the years. We started to see investors really make a concerted effort to continue to buy into this rally. We also saw sort of broadening in the market depth in terms of rotation take place.”

Bartolini also points to a narrowing spread between growth and value-oriented ETFs.
“It’s not so heliocentric towards tech,” he said. 

First trillion-dollar year for ETF industry?

BTIG’s Troy Donohue thinks ETFs are pacing for a major milestone by the end of the year, as long as the macro factors of the election season don’t make investors too hesitant. 
“It’s been a great start to the year,” said Donohue, BTIG’s head of Americas portfolio trading. “[It] could be the first trillion-dollar year that the ETF industry has.”
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Warren Buffett walks the floor and meets with Berkshire Hathaway shareholders ahead of their annual meeting in Omaha, Nebraska on May 3rd, 2024. 
David A. Grogan

Berkshire Hathaway’s cash pile swelled to a record $276.9 billion last quarter as Warren Buffett sold big chunks in stock holdings including Apple.
The Omaha-based conglomerate’s cash hoard jumped significantly higher from the previous record of $189 billion, set in the first quarter of 2024. The increase came after the Oracle of Omaha sold nearly half of his stake in Tim Cook-led tech giant in the second quarter.

Berkshire has been a seller of stocks for seven quarters straight, but that selling accelerated in the last period with Buffett shedding more than $75 billion in equities in the second quarter. That brings the total of stocks sold in the first half of 2024 to more than $90 billion. The selling by Buffett has continued in the third quarter in some areas with Berkshire trimming its second biggest stake, Bank of America, for 12 consecutive days, filing this week showed.
For the second quarter, Berkshire’s operating earnings, which encompass profits from the conglomerate’s fully-owned businesses, enjoyed a jump thanks to the strength in auto insurer Geico. Operating earnings totaled $11.6 billion in the second quarter, up about 15% from $10 billion a year prior.
Buffett, who turns 94 at the end of the month, confessed at Berkshire’s annual meeting in May that he is willing to deploy capital, but high prices give him pause.
“We’d love to spend it, but we won’t spend it unless we think [a business is] doing something that has very little risk and can make us a lot of money,” the investment icon said at the time. “It isn’t like I’ve got a hunger strike or something like that going on. It’s just that … things aren’t attractive.”
The conglomerate bought back just $345 million worth of its own stock in the second quarter, significantly lower than the $2 billion repurchased in each of the prior two quarters.

The S&P 500 has surged the last two years to record levels as investors bet the Federal Reserve would lower inflation with higher interest rates, while avoiding an economic recession. So far, that has played out with the S&P 500 up 12% in 2024. However, concerns about a slowing economy have been awakened recently by some weak data, including Friday’s disappointing July jobs report. The Dow Jones Industrial average lost 600 points on Friday. Investors have also recently grown concerned about the valuations in the technology sector, which has led the bull market because of optimism surrounding artificial intelligence innovation.

Geico boosts earnings

Geico, the company Buffett once called his “favorite child,” registered nearly $1.8 billion in underwriting earnings before taxes in the second quarter, more than tripling the level of $514 million from a year ago.
Profit from BNSF Railway came in at $1.6 billion, in line with last year’s number. Berkshire Hathaway Energy utility business saw earnings fall to $326 million, nearly half of the $624 million from the same quarter a year ago. BHE continues to face pressure for possible wildfire liability.

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Berkshire Hathaway ‘A’ shares, year-to-date

Berkshire’s net earnings, which includes short-term investment gains or losses, declined to $30.3 billion in the second quarter from $35.9 billion in the same period a year ago. Buffett cautions investors to not pay attention to quarterly fluctuations in unrealized gains on investments, which can be “extremely misleading.” More

How quickly the mood turns. Barely a fortnight ago stockmarkets were on a seemingly unstoppable bull run, after months of hitting new all-time highs. Now they are in free fall. America’s Nasdaq 100 index, dominated by the tech giants that were at the heart of the boom, has fallen by more than 10% since a peak in mid-July. Japan’s benchmark Topix index has clocked losses well into the double digits, dropping by 6% on August 2nd alone—its worst day since 2016 and, following a 3% decline on August 1st, its worst two-day streak since 2011. Share prices elsewhere have not been bludgeoned quite so badly, but panic is sweeping through markets (see chart 1). Wall Street’s “fear gauge”, the VIX index, which measures expected volatility through the prices traders pay to protect themselves from it, has rocketed to its highest since America’s regional-banking crisis last year (see chart 2). More

Berkshire Hathaway’s cash hoard is likely to exceed its previous record of $189 billion when it reports second-quarter earnings Saturday morning.
Buffett has been offloading winning investments in Apple, Bank of America and BYD, making some believe the Oracle of Omaha has grown concerned that the bull market is overheated.
Buffett confessed at Berkshire’s annual meeting in May that he is open to putting more capital to work, but high prices give him pause.

Warren Buffett in Omaha, Nebraska, on May 3, 2024.
David A. Grogan

Berkshire Hathaway’s highly scrutinized cash pile could top $200 billion — more than the entire annual gross domestic product of Hungary — amid CEO Warren Buffett’s rare sale of some of his favorite stocks.
The Omaha-based conglomerate is likely to say its cash hoard topped the previous record of $189 billion, set in the first quarter, when it reports second-quarter earnings Saturday morning. Berkshire’s results come at a time when Buffett has been offloading winning investments in Apple, Bank of America and BYD, leading some to believe the Oracle of Omaha has grown concerned that the bull market is overheated.

“It does look like he wants to de-risk the portfolio a little bit,” Bill Stone, chief investment officer at Glenview Trust Company and a Berkshire shareholder, said early in the week. “He’s trimming two top holdings and you don’t get anything more economically sensitive than the banks. The market seems so sure right now of a soft landing, and maybe he’s taking more of a contrarian view.”

Arrows pointing outwards

Berkshire has been a net seller of stocks for six straight quarters. Notably, Buffett trimmed his massive Apple bet by 13% in the first quarter for tax reasons after reaping enormous gains. The selling could have resumed in the second quarter as shares of the iPhone maker jumped 23% during the period.
Meanwhile, in a surprising move, the conglomerate recently started dumping Bank of America shares, its second-biggest holding after Apple. Over the past 12 trading sessions, Berkshire has sold $3.8 billion of the Charlotte-based bank’s shares. The Bank of America sales began in July and will not be reflected in the second-quarter report.
Buffett’s gigantic war chest has been earning sizeable returns due to the jump in Treasury yields over the past two years, but with interest rates set to decline from multiyear highs, his mounting cash pile could once again draw questions. If invested in three-month Treasury bills at about 5%, $200 billion in cash would generate about $10 billion a year, or $2.5 billion a quarter, but those returns are set to decline once the Federal Reserve starts lowering interest rates.
“It’s just a question of how long they are going to sit on it,” Andrew Kligerman, TD Cowen’s Berkshire analyst, said in an interview, referring to Berkshire’s enormous cash pile.

‘Things aren’t attractive’
Buffett, who turns 94 at the end of the month, confessed at Berkshire’s annual meeting in May that he is open to putting more capital to work, but high prices give him pause.
“I think it’s a fair assumption that [cash holdings] will probably be about $200 billion at the end of this quarter,” the investment icon said at the time. “We’d love to spend it, but we won’t spend it unless we think [a business is] doing something that has very little risk and can make us a lot of money … it isn’t like I’ve got a hunger strike or something like that going on. It’s just that … things aren’t attractive.”

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Berkshire Hathaway

Weakness in noninsurance
Investors will also closely study the quarterly results for Berkshire’s BNSF Railway and Berkshire Hathaway Energy utility business, which recently showed signs of weakness. BNSF is grappling with wage increases and revenue declines, while BHE faces pressure from being held liable for damage caused by wildfires.
“The non-insurance side will weigh on the results, whether it’s the sluggish volumes in railroad coupled with higher labor costs, or utilities, which could put up a good quarter, but nobody’s going to be excited about that just given the liability exposure,” said TD Cowen’s Kligerman, who recently initiated research coverage of Berkshire with a hold rating.
Conversely, Berkshire’s insurance business has been a bright spot, with a 185% year-over-year increase in insurance underwriting earnings in the first quarter.
Shares of Berkshire have rallied more than 21% this year, outperforming the S&P 500’s 14% return, through Thursday. The conglomerate’s market capitalization has ballooned to $956 billion, close to joining the tiny number of U.S. stocks valued at $1 trillion or more.

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The information services sector was a notable weak spot for July, posting a job loss of 20,000.
Professional and business services and financial activities experienced payroll declines of 1,000 and 4,000, respectively.

People walk through a Manhattan mall on July 05, 2024 in New York City.
Spencer Platt | Getty Images News | Getty Images

Hiring in the U.S. slowed significantly last month, with information and financial sectors registering job losses.
The information services sector was a notable weak spot for July, posting a job loss of 20,000. Professional and business services and financial activities experienced payroll declines of 1,000 and 4,000, respectively.

“These sectors are known for creating higher-wage, higher-quality jobs,” said Julia Pollak, chief economist at ZipRecruiter. “The labor market is clearly no longer normalizing. Further deterioration could set off a negative cycle of job losses, consumer spending declines, business revenue declines and more job cuts.”

Nonfarm payrolls grew by just 114,000 for the month, well below the Dow Jones estimate for 185,000. The unemployment rate climbed to 4.3%, its highest since October 2021.
To be sure, there were some relative bright spots.
Health care again led in job creation, adding 55,000 to payrolls. Other notable gainers included construction (25,000), government (17,000), and transportation and warehousing (14,000). Leisure and hospitality, another leading gainer over the past few years, added 23,000.
“The latest snapshot of the labor market is consistent with a slowdown, not necessarily a recession. However, early warning signs suggest further weakness,” said Jeffrey Roach, chief economist at LPL Financial.

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