Stocks week ahead: Warren Buffett has the last laugh as Berkshire Hathaway beats the market

But that doesn’t make Berkshire Hathaway’s Warren Buffett lose sleep.

Banks, energy companies and other value stocks have rallied this year, which is great news for Buffett since the Oracle of Omaha conglomerate invests in many of these companies. Value stocks typically have lower price-to-earnings ratios, and they’re certainly not trendy.

Berkshire Hathaway (BRKB) stocks are up about 3% this year and near an all-time high, while all FAANG, Microsoft (MSFT) and You’re here (TSLA) are deep in the red. FAANG refers to Facebook, Amazon, Apple, Netflix and Google.
Many of Berkshire’s top investments are financial companies that started the year in the green, including Bank of America (BAC), American Express (AXP) and American bank (USB).
Berkshire’s portfolio was also boosted by Chevron (CLC), which is Buffett’s twelfth largest holding. Shares of the oil giant have risen 10% this year, making it the best performer in the Dow Jones.
If this continues, Dave Portnoy of media company Barstool Sports, who has positioned himself as an investment guru for a new generation of traders, will have to eat these words of a Tweet from June 2020“I’m sure Warren Buffett is a great guy, but as far as stocks go, he’s burned out. I’m the captain now.”

It is too early to tell if current market trends will continue. But value investors who have been patient are doing quite well so far in 2022.

“Buffett is the turtle. Value investors are struggling,” said John Buckingham, value equity fund portfolio manager at Kovitz. “Yes, the Portnoys and Cathie Woods will have their day. But many see investing as a casino. The key is to be patient and accept the volatility.”

Of course, 91-year-old Buffett’s biggest stake is Apple (AAPL). which is down 5% so far in 2022, but just reported stellar earnings and strong iPhone sales. Berkshire even has a small stake in Amazon (AMZN), which fell 15%. Berkshire therefore did not completely avoid the collapse of the Nasdaq.
But Berkshire does not own Facebook (Facebook) parent Meta, Netflix or google (GOOGL) Alphabet owner. Nor does he invest in Microsoft (MSFT), due to Buffett’s friendship with Microsoft co-founder Bill Gates. Berkshire has no stake in Elon Musk You’re here (TSLA)but he invested in a Chinese electric car company BYD (BYDDF).

Berkshire is not just an investment company. He owns well-known businesses ranging from battery manufacturer Duracell and the Burlington Northern Santa Fe Railroad to Dairy Queen, Fruit of the Loom and paint salesman Benjamin Moore.

However, Berkshire is primarily a financial services company thanks to its ownership of insurance giant Geico and several other companies in the industry.

Berkshire also benefited as investors flocked to financial stocks on expectations that the Federal Reserve will soon begin raising interest rates. Berkshire is the largest holding in the Financial Sector Select SPDR (XLF) exchange funds.

“When investors look to value, they will buy financial stocks and Buffett will get his share,” Buckingham said. “Berkshire benefits as higher interest rates help Buffett’s insurance business.”

All eyes are on the BoE and the ECB

Speaking of rates, the Fed has strongly suggested a hike is coming in March. Investors will be watching the January jobs report on Friday for data on wage growth and inflation, which could impact future Fed decisions.
Some central banks have already hiked rates to fight rising inflation. The Bank of England, which raised rates from zero in December, is expected to raise them again at its next meeting on Thursday.

Nearly two-thirds of economists polled by Reuters expect the central bank to raise rates by another quarter of a percentage point, to 0.5%.

Many central banks in developed economies are expected to follow suit and start raising rates later this year.

“They’re all going to move gradually if they can. Central banks don’t need to be too aggressive. It can be systematic,” said Anthony Saglimbene, global markets strategist at Ameriprise Financial.

The only likely exception to the rule? The European Central Bank. The ECB also meets on Thursday and is not expected to raise rates. Its key refinancing rate is expected to remain at zero and likely to remain there for the foreseeable future.

ECB President Christine Lagarde is arguably the most accommodating of the world’s leading central bankers. She argued that the ECB is unlikely to raise rates at any time in 2022 as the Covid pandemic remains a major economic challenge.

“The ECB will want to allow more time before rate hikes,” Saglimbene said. “Growth is slower.”

Saglimbene noted that southern European countries still need rock-bottom rates to boost their economies, while EU powerhouse Germany is hurt by a slower global trade and manufacturing environment.

Following

Monday: Chinese stock exchanges closed all week for Lunar New Year

Tuesday: ISM manufacturing in the United States; December tremors; Earnings of Exxon Mobil (XOM), UPS (UPS), UBS (UBS)Alphabet, Starbucks (SBUX), GM (GM), PayPal (PYPL) and electronic arts (EA)
Wednesday: US ADP employment report; Earnings of Marathon Oil (MPC), AbbVie (ABBV), humane (HUM), New York Times (NYT)Meta platforms, T-Mobile (TMUS), Metlife (ENCOUNTER), Allstate (ALL), Qualcomm (COMQ), Aflac (AFL) and Spotify (PLACE)
Thusday: rate decisions by the Bank of England and the European Central Bank; weekly jobless claims in the United States; U.S. ISM Services: Revenue from Shell (RDSA), Cigna (THIS), Conoco Phillips (COP), Merck (M.K.R.), Honeywell (HON), Hershey (HSY)Amazon, Ford (F), Prudential (ERP), ActivisionBlizzard (ATVI), press company (NWS), Clorox (CLX), Break (BREAK) and pinterest (PINS)
Friday: US jobs report; Earnings of Bristol Myers (BMY)

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