That seems to be a question a lot of people are asking lately.  Warren Buffett surprised a lot of investors this past weekend by disclosing that he was a net seller of equities in April after liquidating all of Berkshire Hathaway’s (BRK/a) stakes in the major airlines. Declines like the one we saw in February and March have typically been used by Buffett as an opportunity to add to Berkshire’s equity exposure, and over the last couple of weeks, everyone has been wondering what positions Buffett may have added to or even initiated during the sell-off.  Therefore, the news that Buffett actually added cash to his $100 billion war chest was surprising.  The fact that Buffett became even more conservative after Berkshire reported a quarterly loss of nearly $50 billion has the stock underperforming with a decline of over 3% today.

Even before the weekend’s events, shares of BRK/a have been underperforming the S&P 500 by a wide margin, and while it’s not particularly uncommon for BRK/a to underperform when the equity market is doing well, investors will usually tolerate that underperformance knowing that the stock will outperform in a bear market.  The only problem this time around is that even with the S&P 500 moving into (and out of) bear market territory in the last several weeks, the stock is still lagging the broader market in a big way.

Berkshire has been doing so bad lately that after today’s weakness, the stock’s relative strength versus the S&P 500 is at a five-year low.  Going all the way back to 1980, there has only been one other period where the Oracle of Omaha’s stock has seen its relative strength versus the S&P 500 drop to a five year low, and that was in late 1999/early 2000.  In fact, the title of this post has nothing to do with the present period as it’s actually a headline from an article in the Wall Street Journal from 12/27/1999.

As shown in the above chart, the one and only other time that Berkshire’s relative strength hit a five-year low, it didn’t stay low for long.  Below, instead of showing the relative strength, we show Berkshire’s price in the five years before and after that period.  From 1995 right up until early 1998, Berkshire’s stock did very well, but as the tech bubble began to inflate, the stock ran out of steam.  While Berkshire made a run at new highs in early 1999, it couldn’t quite get there, and from there the stock was nearly cut in half in the span of a year.  From there, though, Berkshire rebounded quickly even as the rest of the market started to fall apart and shareholders who held on made out well.

Fast-forwarding twenty years to today, the pattern for Berkshire has some similarities to the period leading up to 2000.  Like the late 1990s, Berkshire was essentially range-bound in the last couple of years leading up to the recent decline, but unlike 1999 when the stock failed to make a higher high, Berkshire hit a new high right along with the S&P 500 earlier this year.  Now that the stock has fallen and underperformed so sharply, questions surrounding Buffett and whether he has lost his touch are making the rounds.  History has shown that it has never been profitable to bet against Warren Buffett in the past, so that would make now look like an opportune time to be in the stock.  The only caveat here is time.  The last time people were questioning whether Berkshire was worth holding for the long-term, Buffett was just 69 years old.  This time around he’s less than four months away from his 90th birthday.  Definitely a young 90, but 90 nonetheless.  Start a two-week free trial to Bespoke Institutional for full access to our research and interactive tools.

More than 700 companies have reported Q1 earnings since April 13th when the current reporting period kicked into gear.  Since the season began, 62% of companies have managed to report better than expected EPS numbers, while 64% of companies have reported better than expected sales numbers.

Below are charts showing the percentage of companies that have beaten consensus analyst EPS and sales estimates over the last three months on a rolling basis over the last year.  Our 3-month EPS beat rate tracker is currently at 61.76%.  That’s still above the long-term average beat rate of 59.37%, but it’s trending lower towards that average.

While the EPS beat rate is trending lower, the sales beat rate has been trending sideways well above its long-term average of 56.45%.  Of course, sales have been crushed since March when the economic shutdowns began, but these numbers show how companies have managed to report versus analyst expectations.  For Q1 at least, sales beat rates haven’t been impacted.

Another indicator we track is the “guidance spread,” which is calculated as the difference between the percentage of companies raising guidance and lowering guidance on a rolling 3-month basis.  As shown below, the current guidance spread is at -12.24, which means companies lowering guidance outnumber companies raising guidance by 12.24 percentage points.  That’s easily the lowest reading seen in the last year and it’s trending lower.

When we expand the guidance spread chart back to 2003 when our data begins, however, the current level is nowhere near as low as the readings seen in 2015 or during the Financial Crisis in late 2008.  Right now companies have actually been loathe to provide any guidance at all given the uncertainty regarding the re-opening of the US economy.  More clarity on things could result in more positive guidance, but it could also result in much more negative guidance as well.

You can track how individual stocks are reacting to earnings reports at our Earnings Explorer page, and below is a list of the stocks that have seen the biggest gains on their earnings reaction days so far this season.  Start a two-week free trial to Bespoke Institutional to try out our Earnings Explorer today.

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.

While you’re here, join Bespoke Premium for 3 months for just $95 with our 2020 Annual Outlook special offer.

Policy Failures

Unemployment filing failures by Ben Zipperer and Elise Gould (EPI)

An analysis of jobless claims data suggests that the extreme volume of new filings is under-reported by as much as 60% thanks to millions of workers who were unable to file or didn’t try to file because of difficulty navigating the system. [Link]

The perils of Hooverism by Ryan Cooper (The Week)

As millions lose their jobs and the unemployment rate soars into the double digits, rhetoric is rapidly shifting from emergency support to brutal austerity, risking the livelihoods and basic security of millions in an incredibly depressing re-run of the initial policy response to the Great Depression almost a century ago. [Link]

Why the US shouldn’t let states go bankrupt by Emily Stewart (Vox)

Many states face very little discretion over budgets when receipts plunge, exacerbating economic downturns with layoffs just when demand is already in its worst shape. [Link]

Thomas Piketty: Willing EU countries should spearhead fiscal union by Jakob Hanke Vela, Marion Solletty and Florian Eder (Politico)

French economist Thomas Piketty argues that joint debt is a necessary evolution of the European Union in response to the COVID-19 crisis. [Link]

Politics

We spent the lockdown sorting American voters into 380,000 distinct groups (The Economist)

Using a national data set, The Economist used demographic buckets to more accurately model state-level outcomes than polls which focus on individual states. [Link; registration required]

The unlikely alliance trying to rescue workplace health insurance by Susannah Luthi (Politico)

As millions of workers are removed from company health insurance plans, Democrats are planning to bail out health care insurers who are losing billions in premiums to the labor market collapse. [Link]

Weird Disruptions

Trucks Are Filling a 6,000 Mile Beijing-to-Berlin Supply Gap by Brian Parkin and William Wilkes (Bloomberg)

With airlines not flying, the cargo space which usually serves for just-in-time delivery capacity between China and Europe is being replaced by a massive cobbled together truck daisy chain stretching across Asia. [Link; soft paywall]

Dirty money piling up in L.A. as coronavirus cripples international money laundering by Matthew Ormseth (LAT)

Cash-based businesses are shuttered thanks to coronavirus, and that’s leading to a major pileup of money that typically gets laundered in the city. [Link; soft paywall]

Liquidity

This is how bad things are for museums: They now have a green light to sell off their art by Sebastian Smee (WaPo)

The powerful cartel which dominates norms in the world of art museums is advising members that selling actually makes sense in the current environment. [Link; soft paywall]

Covid-19 and corporate sector liquidity by Ryan Banerjee, Anamaria Illes, Enisse Kharroubi and José-Maria Serena (BIS)

A BIS analysis of 2019 corporate filings suggests the corporate sector does not have cash on hand adequate to cover interest costs, meaning operating losses thanks to COVID in 2020 require new debt issuance to cover, driving up total leverage from already high levels. [Link; 9 page PDF]

Blowback

U.S. response to virus splinters into acrimony and uncertainty (Thomson Reuters Foundation)

Confusion at the top and a wide range of state-level impacts have turned the national response to COVID-19 into an partisan blame-game that does all but ignore public health best practice. [Link]

The Anti-Mask League: lockdown protests draw parallels to 1918 pandemic by Peter Lawrence Kane (The Guardian)

During the 1918 flu pandemic, strict mask-wearing requirements were met with huge hostility and even outright rebellion in San Francisco, even though they sharply curtailed spread of the disease. [Link]

Viral Effects

People Were Leaving New York City Before the Coronavirus. Now What? by Kate King (WSJ)

High costs and little space as well as plentiful jobs elsewhere were pulling residents out of New York City even before the COVID-19 crisis hit; that slow trickle may become a flood. [Link]

How the Coronavirus Pandemic Has Affected Local Businesses Around the Country by Carl Bialik (Yelp)

Yelp data illustrates the shifting interest of the company’s users over the course of the last six weeks, with some huge new interest to go with plunging activity in a range of sectors. [Link; paywall]

‘It Was Just Too Much’: How Remote Learning Is Breaking Parents by Elizabeth A. Harris (NYT)

Parents used to having their children out of the picture during the work day are having to juggle teaching as well as their jobs and the results are painful. [Link; soft paywall]

Solutions

‘Canine surveillance’: How Labrador retrievers are being trained to sniff out coronavirus cases by Karin Bruilliard (The National Post)

While not all of the potential fixes for the COVID-19 crisis are appealing, it’s hard to come up with a more appealing scenario than an army of friendly canine investigators being used for detection. [Link; auto-playing video]

The Secret Group of Scientists and Billionaires Pushing a Manhattan Project for Covid-19 by Rob Copeland (WSJ)

A secretive group of scientists has come together to argue for unorthodox solutions to the COVID-19 outbreak, including experimental large dose treatments of drugs designed for other diseases, COVID-specific antibody therapies, and vaccines. [Link; paywall]

Schnepf Farms in Queen Creek starts drive-in movies by Brittni Thomason (AZFamily)

An Arizona farm has thrown up a screen and started hosting drive-in movies as a way to make up for missing revenue from weddings and other events. [Link]

Tesla

Tesla Cybertruck’s engineering and design might be genius — here’s why by Sean Szymkowski (Road Show)

By combining panels and frame, Tesla’s pickup design may be able to save massively on costs relative to the traditional approach to auto manufacturing. [Link]

Labor Markets

Amazon, Whole Foods, Instacart Workers Organize a Historic Mass Strike by Lauren Kaori Gurley (Vice)

Gig economy and retail workers are attempting a mass strike and urging customers to boycott companies like Amazon, Instacart, and Target in protest of their handling of the COVID crisis. [Link]

Tech

Virtual rate cut forces Nintendo gamers into riskier assets by Leo Lewis and Robin Wigglesworth (FT)

Popular Nintendo game Animal Crossing has in-game currency and interest rates, and the most recent update slashed the rates paid in order to prevent a hack that allowed abuse of the interest system. [Link]

Wi-Fi is getting its biggest upgrade in 20 years by Jacob Kastrenakes (The Verge)

For the first time since 1989, the FCC is allowing unlicensed use of spectrum that opens up more possibilities for ubiquitous WiFi tech. [Link]

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Have a great weekend!

Please click the image below to view our May 2020 market calendar.  This calendar includes the S&P 500’s average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Start a two-week free trial to one of Bespoke’s three research levels.