Buffett sells Apple, Snowflake, keeps hoarding cash, can the US stock market still play
Recently, Buffett has been selling a large number of stocks, holding a pile of cash and bonds, which has attracted a lot of attention. His actions remind people of what he did before the financial crisis in the 1970s and 2008, and also make many people worry about whether the economy is going to have problems again.
Historically, Buffett did this in the early 1970s and before the 2008 financial crisis. That two times, he sold stocks because he felt the market valuation was too high, not because he knew a crisis was coming. Buffett’s investment follows a simple principle: don’t buy stocks that are too expensive.
Massive sell-off triggers volatility in the US stock market
In 1969, Buffett believed that market stocks were generally overvalued and unable to find suitable investment targets, so he decided to liquidate and close his investment company.
Despite experiencing bull markets in 1970 and 1972, he firmly believed in his investment philosophy and did not re-enter the market until 1973 when the market plummeted.
Both of these operations are enough to prove that Buffett attaches great importance to valuation rather than predicting short-term market fluctuations.
In 2008, before the financial crisis, Buffett began significantly reducing his stock holdings and hoarding cash, citing the inability to find investment opportunities with reasonable valuations at the time.
Although Buffett’s performance lagged significantly behind the market in those years, he successfully bought the bottom after the 2008 financial crisis. It also proves that Buffett’s decision to hold a large amount of cash a few years in advance was wise.
Now, Buffett has adopted a similar strategy, selling a large number of US stocks such as Apple and Snowflake, and hoarding a large amount of cash.
This suggests that Buffett may believe that the current market valuation is too high and lacks attractive investment opportunities, rather than solely based on concerns about short-term economic crises.
Buffett’s actions reflect his consistent investment logic: he would rather hold cash in an overvalued market than take the risk of buying overvalued stocks.
From previous operations, Buffett did not rely on complex market forecasts, but firmly believed in simple and effective investment principles.
This method may seem simple, but it is difficult to implement and requires great patience and discipline. This is also the reason why many ordinary investors cannot fully replicate Buffett’s operations.
From Buffett’s behavior, it may indicate that the current market valuation is already at a high level and risks are accumulating.
However, when it comes to whether to follow Buffett’s selling strategy, everyone needs to make a decision based on their own investment goals and patience. As Buffett said, the key to successful investment is to avoid overvalued stocks and maintain sufficient funds and patience when opportunities arise.
Can the US stock market continue to play?
We need to analyze this issue from multiple perspectives!
What does Buffett’s behavior mean?
Firstly, Buffett’s sell-off of Apple and Snowflake is not the first time, as he has previously reduced his holdings. This does not necessarily mean that he is not optimistic about the long-term development of these companies, but rather that he is adjusting his investment portfolio, controlling risks, or seeking other investment opportunities.
Buffett’s approach is long-term investment, not just looking at the short-term market. So what he did was more defensive, not because he felt the market was about to collapse.
Can the US stock market still play?
Investors cannot just look at what Buffett does. Although he has sold some technology stocks, there are still many promising companies in the market that should be considered in the following three aspects.
Investors can choose industries and stocks with long-term growth potential (such as technology, green energy, artificial intelligence), rather than just following the overall market trend.
It is crucial to maintain attention and flexibly adjust the investment portfolio. Faced with market fluctuations, this is a good opportunity for prepared investors to seek opportunities for underestimation.
Diversify investments and allocate assets reasonably to reduce risks in a single market or industry. A moderate cash holding ratio can effectively cope with market fluctuations and enter the market at the appropriate time.
Is Buffett’s actions a warning?
Buffett’s actions undoubtedly triggered market panic. However, the short-term trend of the market is not entirely driven by valuation, but is also influenced by factors such as liquidity, policies, and corporate profit expectations.
Buffett is more of a defensive strategy, reminding investors to be vigilant at all times when the market is high. Buffett also emphasized the importance of cash.
Ordinary investors need to be careful not to blindly follow the trend and make appropriate adjustments based on their own risk tolerance and investment goals. There are still many opportunities on the market that need to be carefully selected to avoid chasing high prices and unreasonable exposure risks.
Interest rate cuts are coming, the economy is doing well, and there are many opportunities for the US stock market
Weakening inflation data: economic cooling rather than recession
The inflation data for July was lower than expected, with CPI and PPI rising by 2.9% and 2.2% respectively over the year. The prices of food, clothing, old and new cars, air tickets, etc. have all started to decline, indicating that consumer prices are slowly falling.
However, the house and rent are still quite expensive, and the car insurance costs are not low. Although these places have lowered prices slowly, over time, the prices will gradually come down, helping to reduce overall inflation.
Lowering inflation is beneficial for everyone. Consumers can save some money, which increases their willingness to buy things. This is a good thing for the economy,
Once the Federal Reserve’s inflation rate drops and reaches their 2.0% PCE inflation target, it becomes feasible. In the coming months, if inflation continues to decline, the Federal Reserve may use this as an excuse to adjust policy, and may even start cutting interest rates.
Simply put, inflation is good news for both the market and the Federal Reserve, which may affect how they adjust interest rates.
Economic data exceeds expectations: Consumer spending and job market remain stable
Previously, the market was worried about an economic recession due to the poor July non farm payroll report, but recently some economic data has been better than expected, easing these concerns.
For example, retail sales in July increased by 1%, much higher than the expected 0.4%. The consumer expectation index was also good, and the number of people applying for unemployment benefits was decreasing, indicating that although the labor market has slowed down, it has not deteriorated sharply.
The improvement of economic data tells us that although the US economy is cooling, it is still growing healthily. The rise of retail sales shows that consumers are very awesome, which is important because consumption accounts for a large proportion of US GDP.
The unemployment rate has not increased, indicating that although the growth rate of the labor market has slowed down, there has been no large-scale unemployment.
These data all support the market’s expectation of a “soft landing” for the economy, in simple terms, economic growth has slowed down a bit, but it will not lead to a recession.
Federal Reserve policy path: Is the interest rate cut cycle about to begin?
With the weakening of inflation data and the improvement of economic data, people increasingly feel that the expectation of the Federal Reserve launching a rate cut cycle at the FOMC meeting on September 18th is gradually increasing.
Although some people speculate that the Federal Reserve will suddenly lower by 50 basis points, it seems unnecessary now. The Federal Reserve may be more inclined to gradually lower.
The Fed’s interest rate cuts have a significant impact on the market, especially when everyone thinks the economic outlook is still good. Cutting interest rates can help businesses save money, make everyone happy, and may even boost the stock market.
However, interest rate cuts may also prompt some investors to reconsider their assets, especially those high-risk, high return investments.
So, the future direction of the Federal Reserve’s monetary policy is the focus of market attention.
Market outlook: A diversified leading pattern may form
Inflation has decreased, economic data has improved, and the market has rebounded, especially in technology stocks. The Federal Reserve may cut interest rates, which will broaden market hotspots and bring diversified investment opportunities.
History tells us that interest rate cuts and an economic soft landing are good things for the market. Investors can turn to more industries, such as industry and finance, which can both diversify risks and seize opportunities.
Against the backdrop of upcoming interest rate cuts and relatively stable economic conditions, the following types of ETFs may be worth paying attention to:
Large value ETFs: With the start of the interest rate cut cycle, a stable economic situation and a low interest rate environment will help improve the performance of value stocks, especially those companies with stable profitability and stable cash flow. Value based ETFs such as Vanguard Value ETF (VTV) or iShares Russell 1000 Value ETF (IWD) may benefit from this trend.
High dividend ETF: In a low interest rate environment, investors often prefer assets that provide stable dividend returns because these assets can provide more reliable returns when interest rates fall. High dividend ETFs such as Vanguard High Dividend Yield ETF (VYM) or iShares Select Dividend ETF (DVY) are worth considering.
Real Estate Investment Trusts (REITs) ETFs: Interest rate cuts typically benefit the real estate market, especially REITs, as lower interest rates can lower financing costs and increase property values. REITs ETFs such as Vanguard Real Estate ETF (VNQ) or Schwab US REIT ETF (SCHH) may perform well in a rate cutting environment.
Technology and Growth ETFs: Although value stocks may perform well in this environment, as economic growth is sustained, technology and growth stocks may continue to benefit, especially when interest rate cuts bring lower financing costs. Technology based ETFs such as Invesco QQQ Trust (QQQ) or Vanguard Information Technology ETF (VGT) can continue to benefit from long-term growth trends.
Cyclical industry ETFs: Stable economic growth typically drives the performance of cyclical industries such as industry, finance, and materials. The performance of these industries is closely related to the economic cycle and usually performs well during periods of economic expansion. Cyclical industry ETFs such as Industrial Select Sector SPDR Fund (XLI) or Financial Select Sector SPDR Fund (XLF) may be worth paying attention to.
Against the backdrop of upcoming interest rate cuts and stable economy, investors can consider investing in ETFs in value, high dividend, REITs, technology and growth, and cyclical industries. These types of assets not only provide potential returns when interest rates fall, but also benefit from an environment of stable economic growth.
Disclaimer: The content of this article is for reference only and does not constitute investment advice. Investment carries risks, and caution is necessary when entering the market.
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