Debasis Mohapatra
Bengaluru, 4 July 2024
When was the last time Warren Buffet decided to sit on cash? As per reports, Warren Buffett’s company, Berkshire Hathaway, has sold nearly half its stake in tech giant Apple, offloading nearly 50% of the shares. With this sale, the cash holding of Buffet reached almost $280 billion.
Now, the market is wondering, is it a sign of an impending market correction? Does the big money know something that others don’t? Whatever may be the answer to these questions, the equity market is obviously nervous. US stocks closed sharply lower Friday, with the technology-heavy Nasdaq Composite witnessing a sharp sell-off. Nasdaq closed 2.43% lower at 16,776.16 on Friday last week with selling pressure seen in major technology stocks.
The reasons for the market’s nervousness are:
- Weak US job data: According to the jobs data released last week, 114,000 US jobs were added in July, which was well below estimates. The unemployment rate also unexpectedly climbed for a fourth month to 4.3%. These indicators raised fears of a possible recession in the US economy. The shrinking of US manufacturing activity in July also dampened sentiment.
- US Fed maintains status quo: The US Federal Reserve maintained the status quo in its latest review. Though the central bank hinted at an interest rate cut in September, many analysts felt that the US Fed might be behind the curve. This led to investors selling their positions last week.
- AI bet not paying dividend yet: Earnings disappointment of several high-profile technology firms have raised questions about the revenue translation from these companies’ heavy AI bets. In expectation of AI driving revenues, investors have already taken the stock prices of these companies towards a higher trajectory. Nvidia and Tesla were down more than 20% from recent highs, while Microsoft Corp. and Amazon have each lost more than 10%. With the stretched valuation of these tech companies, investors have started to find solace in defensive stocks.
Against this backdrop, the upcoming week will determine whether the fear is real or a timely correction of overpriced stocks.
