Buffett Letters and Berkshire Hathaway (BRK.B) Performance
On Saturday, Warren Buffett’s annual letter to shareholders of Berkshire Hathaway (BRK.B) was posted. Amidst commentary on stock buybacks and a brief discussion of the company’s performance in 2022, the letter did not have any explosive market-moving news or commentary. As a result, price action today has been relatively uneventful. That same sort of sleepy price action also applies to the past few months. Overall, the Oracle of Omaha’s company has been treading water since last fall with a flat 50-DMA and 200-DMA to boot.
Although BRK.B is trending sideways over the past few months, looking back since the start of last year, the stock has performed remarkably well. As shown by the relative strength line below, strong performance in early 2022 (as the equities began to enter a bear market) led BRK.B to massively outperform the S&P 500 (SPY). Although still outperforming, the pattern at the start of this year has been the polar opposite of last year. Given equities have broadly rallied and Berkshire has been rather stagnant, the stock’s relative strength has taken a sharp turn lower headed into this weekend’s letter and the annual conference coming up in a few months.
In the table below, we break down the performance of the company’s b-shares after the release of Buffett’s annual letters. Again, the stock’s reaction today has been a bit muted, with the flat move lower than the historical average of a 0.54% gain. Going forward, performance has been mixed. While one week and one month out from the letter have averaged gains and positive moves more than half the time, three months later has seen BRK.B fall more than half the time. From there, consistent with what has tended to be Mr. Buffett’s optimistic long-term view, performance has tended to be more consistently positive with a move higher nearly two-thirds of the time one year later for an average gain of 13.7%. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 2/27/23 – Regrouping
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“Money cannot consistently be made trading every day or every week during the year.” – Jesse Livermore
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It may have only been four trading days, but last week was a tough one for the bulls. When the dust finally settled, the S&P 500 closed modestly back below its 50-day moving average as well as its uptrend from the October lows. If the market can recover quickly from here, technicians will look past Friday’s breakdown as it wasn’t entirely convincing, but for now, the burden of proof has shifted to the bulls. One thing we can be pretty confident of is that with less than 1% separating them, by the end of the week, the S&P 500 will probably either be above both its 50 and 200-day moving averages or below them.
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Bespoke Brunch Reads: 2/26/23
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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Warfare
How Putin blundered into Ukraine — then doubled down by Max Seddon, Christopher Miller, and Felicia Schwartz (FT)
A detailed look at the psychology, advisors, and historical misconceptions that led Russia to its disastrous invasion of Ukraine, a war that has now claimed over 200,000 casualties within Russia’s military alone. [Link; paywall]
Sensitive US military emails spill online by Zack Whittaker (Tech Crunch)
A Microsoft Azure cloud server hosting Department of Defense emails was open to the public internet for two weeks, spilling years of emails and personal information, though none of the exposed emails appear to be classified. [Link]
State Policy
Frontier Institute Statement In Support of SB 323 (Frontier Institute)
A libertarian think tank in Montana has penned this endorsement of SB 323, a bill reforming zoning regulations and allowing higher density home construction. In what can only be described as trolling, the institute argues “we don’t want Montana to become like California” by preventing cities from building housing up instead of sprawling out. [Link]
Kids Buying Weed From Bodegas Wasn’t in the ‘Legal Weed’ Plan by Ginia Bellafante (NYT)
Legalization of marijuana in New York City is proceeding about how one would expect: messy, entrepreneurial, controversial, and confusing. The result is widespread underground marijuana sales at bodegas as legal dispensaries struggle to navigate state licensure. [Link; soft paywall]
Energy Markets
Global distillate fuel oil inventories by John Kemp (Reuters)
A helpful rundown on extremely tight global inventories of distillate (diesel) fuels which are extremely low thanks to the disruptions of the war in Ukraine. [Link; 15 page PDF]
Big Tech
Google asks some employees to share desks amid office downsizing by Jennifer Elias (CNBC)
Looking to save money on real estate amidst a boom in work from home, Google is asking employees at its cloud unit to share desk space at its 5 largest locations. [Link]
China tells big tech companies not to offer ChatGPT services by Cissy Zhou (Nikkei Asia)
OpenAI’s chatbot is not finding fans at the Chinse Communist Party, as regulators have instructed companies like Tencent and Ant Group to avoid offering access on their platforms. [Link; soft paywall]
The quietest place on earth will drive you insane (The Jerusalem Post/Walla! Health)
In a quiet enough room, you can hear your heart beat, the flow of blood through your body, and the creak of your bones. Why Microsoft would want to build a torture chamber like this is a bit beyond us but they did it. [Link]
Industrial Policy
Tesla Makes US the Focus of Battery-Making Efforts in Blow to Germany by Wilfried Eckl-Dorna (Bloomberg)
Tesla has decided to manufacture battery cells in the US instead of Germany thanks to the incentives in the Inflation Reduction Act passed last year. Tax credits in the act cover as much as 30% of the operating costs for cell manufacturers. [Link; soft paywall]
Business Models
Pay-Per-Chew: More restaurants trying subscription programs (Fox 5 NY)
In an effort to generate more predictable revenue streams and draw repeat customers, mom and pop shops are following the lead of Silicon Valley and offering subscriptions for loyal customers. [Link]
Odd News
The FBI searched the Pennsylvania wilderness for a cache of gold. A treasure hunter wants to know what it found. (CBS)
While the FBI claims there was nothing found when it searched for a Civil War-era gold cache, but competing treasure hunters think they might be hiding something. [Link]
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Have a great weekend!
Mixed Signals
There’s a ton of debate over whether the S&P 500’s 2022 closing low in October marked the start of a new bull market (20%+ rally on a closing basis without a 20% decline in between) or was just a pause in what is likely to be another leg lower. From the bear’s perspective, the tepidness of the rally off those October lows stands out. Already more than four months past those lows, the S&P 500 is only up 10.8%, and its maximum gain was 16.9%. It’s often said that bottoms tend to be so short-lived that the market gives investors a narrow window to get in near the lows, but here we are 135 days removed from that October low, and the S&P 500 still hasn’t reached the 20% threshold for a bull market. To put that in perspective, to find a bull market where it took the S&P 500 longer to reach the 20% bull market threshold, you have to go back to 1962; the ten bull markets between then and now all reached the 20% point faster and the average number of days that elapsed from the closing low to 20% was 57 days.
Although the market’s rally off the October lows has been relatively muted, sector leadership since those lows has hardly been led by defensive sectors. As shown in the chart below, Utilities, Consumer Staples, and Health Care are all up since those October lows, but all three are also underperforming the S&P 500. Meanwhile, cyclical sectors like Materials, Industrials, Financials, and Technology are all handily outperforming. In addition, despite all the concern about higher rates, the Real Estate sector has still managed to outperform.
Looking more recently at sector performance YTD, it’s a similar trend. Consumer Discretionary, Technology, and Communication Services have all outperformed the S&P 500 by a factor of at least 2x while defensive-oriented sectors are not only underperforming the market, but they’re also down YTD. The market may not exactly be following the bull market playbook, but sector leadership isn’t following a recessionary playbook either. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 2/24/23 – Victory or Death
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“I shall never surrender or retreat.” – Sam Houston
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Equity markets are poised to open lower this morning, and the tone has been weakening all morning as futures are right near their lows of the morning. Treasury yields and crude oil are higher, but the moves aren’t really enough to justify the magnitude of the decline in equity futures. Boeing (BA), which is down 3% in the pre-market, helps explain the weakness in Dow futures, but that doesn’t explain the weakness in S&P 500 and Nasdaq futures, which are actually down even more than the Dow.
There’s a lot of economic data to go through this morning. It started with Personal Income and Spending as well as PCE which were just released and will be followed by New Home Sales and Michigan Confidence at 10 AM. In terms of the early data, it wasn’t market-friendly. Personal Income was weaker than expected (0.6% vs 1.0%) while Personal Spending was higher than expected (1.8% vs 1.4%), so consumers are earning less and spending more. Maybe that’s due to higher-than-expected inflation where the headline PCE came in at 0.6% vs 0.5% m/m. Core was even worse relative to expectations coming in at a level of 0.6% versus 0.4% estimates m/m. As you’d expect, equity futures have sold off in reaction to the news while interest rates are higher. with the two-year on pace to close at a new high yield for the cycle.
When looking through the various sector price charts, there were several significant reversals just as they tested (or briefly broke below) some key moving averages. As shown in the charts below, Communication Services, Energy, Consumer Staples, Health Care, and Consumer Discretionary all reversed higher to varying degrees after trading down around their 200-day moving averages (DMA). In addition to those five sectors, Financials, Industrials, and Real Estate all managed to stage similar reversals as their 50-DMAs came into play.
Given this morning’s early weakness and the disappointing economic data, it may look like it was all for nothing. However, if markets can find a way to erase this morning’s weakness and close out the week on a positive note, that lack of surrender will be a difficult trend to ignore.
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Bespoke’s Morning Lineup – 2/23/23 – A Volatile Rally
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“Intuition will tell the thinking mind where to look next.” – Jonas Salk
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It may be the shortest month of the year, but after four straight days of declines for the S&P 500, February is seeming like a long month. This morning, futures are looking to reverse their losing ways, but based on some of the intraday selloffs we’ve seen in recent days, you can’t be too sure of anything. February’s weakness has put a damper on individual investor sentiment as the weekly survey from AAII showed that bullish sentiment plunged from 34.1% down to 21.6%. February hasn’t been a fun month so far, but when you consider the fact that the 10-year yield is up over 40 basis points MTD, it could have been a lot worse than a 2% decline for the S&P 500 and a decline of less than 1% for the Nasdaq.
We just got a slug of economic data with GDP, Personal Consumption, Core PCE, and Jobless Claims. Results relative to expectations were mixed. GDP was revised lower, both initial and continuing jobless claims were lower than expected, while Core PCE was higher than expected at 4.3% vs forecasts for 3.9%. As one might expect given the stronger inflation data, equity futures have seen a modest decline in the immediate aftermath of the report while interest rates are higher.
Even after this month’s weakness, the S&P 500 is still up nearly 4% YTD, but those gains have come with a good deal of volatility. Yesterday was the 35th trading day of the year, and already nearly half of all trading days have seen daily moves of at least 1%. Going back to 1953 which was the first full year of the five-trading day workweek, there have only been five other years where there were as many or more 1% moves in the first five trading days of the year. Of the five prior years where 17 or more of the first 35 trading days were moves of 1% or more, the only year where the S&P 500 was up YTD was 1988 (+7.51%). In all four other years, the S&P 500 was down in the first seven weeks of the year with losses ranging from 3.6% in 2003 to a plunge of 17.7% in 2009.
That’s the past. Looking ahead, of the five prior years shown, that volatility to start the year was followed more often than not by gains. In four of the five years shown below, the S&P 500 was higher for the remainder of the year. The only exception was a big one when in 2008, the S&P 500 started the year off with a decline of 8.5% in the first 35 trading days of the year and then went on to drop an additional 32.7% for the remainder of the year.
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The Bespoke Triple Play Report — 2/22/23
An earnings triple play is a stock that reports earnings and manages to 1) beat analyst EPS estimates, 2) beat analyst sales estimates, and 3) raise forward guidance. You can read more about “triple plays” at Investopedia.com where they’ve given Bespoke credit for popularizing the term. We like triple plays as an indication that a company’s business is firing on all cylinders, with above-expectations results and an improving outlook. A triple play is indicative of positive “fundamental momentum” instead of pure fundamentals, and there are always plenty of names with both high and low valuations on our quarterly list.
Bespoke’s Triple Play Report highlights companies that have recently reported earnings triple plays, and it features commentary from management on triple-play conference calls, company descriptions and analysis, and price charts. Bespoke’s Triple Play Report is available at the Bespoke Institutional level only. You can sign up for Bespoke Institutional now and receive a 14-day trial to read this week’s Triple Play Report, which features 23 stocks. To sign up, choose either the monthly or annual checkout link below:
Bespoke Institutional – Monthly Payment Plan
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Bespoke’s Morning Lineup – 2/22/23 – Miracles Anyone?
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“Do you believe in miracles? YES!” – Al Michaels
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43 years ago today, the US men’s national hockey team shocked the world by defeating the dominant Soviet team in what everyone now knows as the “Miracle on Ice”. Today, faced with stubborn inflation, high-interest rates, lofty valuations, and numerous other concerns, a miracle isn’t the only way out of the current predicament for bulls, but after a sell-off like yesterday’s, it may seem that way. Futures are actually modestly positive in early trade, but hardly in a convincing way. The economic calendar is quiet this morning, but we’ll get the release of the Fed minutes from the previous meeting at 2 PM Eastern.
Yesterday’s plunge in stocks capped off what has been a pretty lousy five days for stocks as the early-year glow in the equity market has lost some of its shine. Every sector in the S&P 500 has traded down over the last five trading days. The least damage has been done in the Consumer Staples and Utilities sectors which are both down less than 2%. Leading the way to the downside, more than half of sectors are down over 3% with Energy leading the way falling over 6.5%. Energy is also one of four sectors down YTD and is the third worst-performing sector YTD.
Sometimes, when you’re watching a game you look at the scoreboard and think, how are we not down even more? The Energy sector has that feeling now. As we noted yesterday, crude oil isn’t far from 52-week lows, and to call the drop in natural gas a free-fall may be an understatement. Earlier this morning, front-month futures briefly dropped below $2 per million BTUs which is a level it hasn’t traded to very often over the last 20+ years. Six months ago, it was close to $10! If someone showed you the charts of oil and natural gas and gave you no other information regarding the state of the economy, the last thing on your mind would be inflation.
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Q4 2022 Earnings Season Conference Call Recaps
Bespoke’s Conference Call Recaps provide helpful summaries of corporate conference calls throughout earnings season. We go through the conference calls of some of the most important companies in the market and summarize key topics covered by management. These recaps include information regarding each company’s financial results, growth by segment, as well as some aspects of the business that management expects to impact future results. We also identify trends emerging for the broader economy in these recaps.
Bespoke’s Conference Call Recaps are available at the Bespoke Institutional level only. You can sign up for Bespoke Institutional now and receive a 14-day trial to read our newest Conference Call recaps. To sign up, choose either the monthly or annual checkout link below:
Bespoke Institutional – Monthly Payment Plan
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Below is a list of the Conference Call Recaps published during the Q3 2022 and Q4 2022 earnings reporting periods.
Q4 2022 Recaps:
Walmart: Q4 2022
Shopify: Q4 2022
Palantir: Q4 2022
MGM Resorts: Q4 2022
Tyson: Q1 2023
Amazon.com: Q4 2022
Meta Platforms: Q4 2022
Apple: Q1 2023
Alphabet: Q4 2022
Boats and ATVs: Brunswick (BC), MarineMax (HZO), and Polaris (PII)
Hershey Q4 2022
Old Dominion Q4 2022
PulteGroup Q4 2022
Whirlpool Q4 2022
Mastercard Q4 2022
Tesla Q4 2022
Microsoft Q2 2023
Johnson & Johnson Q4 2022
Netflix Q4 2022
Bank of America Q4 2022
Taiwan Semiconductor Q4 2022
Constellation Brands Q3 2023
Cintas Q2 2023
FedEx Q2 2023
Adobe Q4 2022
Lennar Q4 2022
Oracle Q2 2023
Costco Q1 2023
Lululemon Q3 2022
Q3 2022 Recaps:
NVIDIA Q3 2023
Walmart Q3 2023
Target Q3 2022
Disney Q4 2022
Zoetis Q3 2022
Generac Q3 2022
Uber Q3 2022
XPO Logistics Q3 2022
Apple Q4 2022
Amazon Q3 2022
Ford Q3 2022
Alphabet Q3 2022
Microsoft Q1 2023
Tesla Q3 2022
Netflix Q3 2022
Johnson & Johnson Q3 2022
UnitedHealth Q3 2022
JP Morgan Q3 2022
PepsiCo Q3 2022
Constellation Brands Q2 2023
Nike Q1 2023
Costco Q4 2022
Lennar Q3 2022
Adobe Q3 2022
Oracle — Q1 2023
DocuSign — Q2 2023
Lululemon — Q2 2022
Recaps published during Q3 2022 are available with a Bespoke Institutional subscription
Bespoke’s Morning Lineup – 2/21/23 – Weak Start to a Strong Week
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“In business, as in politics, it is never easy to go against the beliefs and attitudes held by the majority.” – J. Paul Getty
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Markets have been bending from the spike higher in interest rates, but they have yet to break yet. This morning, they’re getting another test as retail earnings from Home Depot (HD) and Walmart (WMT) has put a drag on futures. Dow futures are down over 300 to kick off the week, the Nasdaq is down about 1%, and the S&P 500 is down about 0.85%.
Oil prices are modestly higher this morning as they continue to churn around in the high 70s which is a range is has been stuck around for more than two months. As shown in the chart below, the low $70s has been a price floor since early December while the low 80s has been a ceiling. As the sideways range has extended at levels much lower than where they were in all of 2022, the 50 and 200-day moving averages continue to drift lower, and this morning, WTI is back below both of those levels.
The sideways range of the last 50 trading days has now shrunk below 18%, which as shown in the chart below, is the narrowest trading range since May 2021. Not necessarily extreme by historical ranges, but given the war with Russia and its impact on the oil market, it’s been a bit of a snoozer in energy markets.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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