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Predictions of a US inventory market crash are rising.
The S&P 500 is up 19% prior to now 12 months, with the Nasdaq surging 26%, each close to all-time highs. Perhaps keep away from any potential AI increase and bust by sticking with the S&P 500? Properly, Magnificent 7 shares account for round a 3rd of the worth of that index.
The S&P 500 14-day relative power index touched 76 not too long ago, although right this moment (15 August) it’s fallen again to simply below 70. Over 70 is usually seen as overheating.
I’m cautious of chart-based standards, so what do fundamentals say? Berkshire Hathway (NYSE: BRK.B) CEO Warren Buffett likes one easy measure: complete market worth divided by GDP.
Recognized by worth traders because the Buffett Indicator, it’s reached an all-time report at 212%. Traditionally, it’s hovered between 90% and 135%, maybe suggesting shares may very well be edging in direction of two-times overvaluation? Eek!
Commentators have been predicting corrections, with strategist Mike Wilson at Morgan Stanley not too long ago suggesting a ten% dip may very well be imminent. Others concern 15% or extra
Berkshire has been a web vendor of shares for 11 quarters in a row, with $344bn in money on its steadiness sheet on the finish of Q2. Ought to we comply with go well with and easily promote? Properly, I additionally see some intriguing buys.
Contrarian buys
Berkshire Hathaway has purchased 5m shares of UnitedHealthcare, price near $1.6bn. Sure, the UnitedHealthcare that’s attracting Division of Justice curiosity in numerous parts of its enterprise, together with the way it accounts for points of Medicare. And the UnitedHealthcare whose inventory fell 53% prior to now 12 months, because it faces margin strain and downgraded its forecasts earlier in 2025.
Usually, Berkshire has taken a stance in opposition to the broader market. But it surely’s not the one contrarian investor exhibiting curiosity. Michael Burry’s Scion Asset Administration has additionally constructed up a place, as has Discovery Capital.
Berkshire has additionally taken a stake in metal producer Nucor — possibly it will probably profit from tightening US import restrictions? And it’s purchased home builder Lennar. I don’t know sufficient to contemplate shopping for both myself but, although I’m bullish about UK builders.
So, that’s one of many methods I’ll strategy a possible inventory market crash. I’ll search for what contrarian traders are shopping for that the bulls don’t appear to need.
By no means good
Saying that, Warren Buffett is the primary to remind us he’s made some huge errors himself. I’m actually be cautious of shopping for UnitedHealthcare whereas it’s below regulatory scrutiny.
However then Berkshire Hathaway itself certainly must be one to contemplate shopping for to fend off short-term wobbles and concentrate on the long run. Now the ‘Buffett premium’ is carrying off — the inventory has misplaced 11% since he introduced his pending retirement — it may very well be even higher worth.
We nonetheless face the uncertainty over how traders will take to new CEO Greg Abel — and possibly a weaker spell for the inventory. However I want I’d purchased Berkshire each time I’ve beforehand thought of it. And even as soon as.
