S&P

History is repeating

Buckle up.

A thread 🧵

2/ The S&P 500 recently broke below a major price channel that had been intact since Oct 2023

To many, this is similar to early 2022

When the index also broke a major 2-year price channel, kicking off a bear market
3/ The biggest catalyst for the recent drop?

Donald Trump’s proposed tariff policies

Unlike the US market, European indices like the DAX have printed record gains this year

Showing this has been a US-specific sell-off

4/ Trump even stated he wouldn’t rule out a recession in 2025

That added fuel to the sell-off as investors reassess US economic growth

Especially under a president who is less focused on short-term economic prosperity

5/ Goldman Sachs, for example, has raised the probability of a US recession in the next 12 months to 20%

With many other banks averaging around 25%

That may seem like a small shift

But, it has sparked real concerns about a recession

6/ Google Trends data shows searches for "recession" have spiked to their highest level since 2022

With stocks selling off, recession probabilities rising, and panic spreading, now is a good time to reassess if these concerns

7/ In a typical recession, the S&P 500 drops around 30%

So far, we've only seen a 9% correction

If this truly is the start of a recessionary decline, we could be looking at another 20% downside

8/ A key recession signal is rising unemployment

Every past US recession occurred alongside a surge in initial jobless claims

In fact, claims tend to rise before recessions even begin

So far, we’re not seeing that warning sign from the labor market

9/ That said, Trump’s tariff policies could reduce profit margins in 2025

Which could lead to a recession in 2026

But shrinking margins alone don’t guarantee a stock market crash

And a good example for that is the period between 1996 and 2000s

10/ And when we look at the stock market, it went on an absolutely massive run during that period

The market only declined during the 2001 recession

In fact, a similar trend played out in 2006:

Stocks kept rising, despite falling profit margins, and only peaked when the recession hit

11/ So, to us, today's widespread recession fears are likely premature

Just like they were in:

- Aug 2024
- Sept 2022
- June 2022

In all of these cases, recession concerns didn’t materialize

12/ Interestingly, these recession fears always emerged after major market sell-offs

But those moments actually marked market bottoms

Which is still our base case right now

13/ Still, as traders, we have to stay open-minded

We need a clear strategy to protect against further downside

Especially since we’ve seen 20%+ drawdowns without a recession

Like in 2019 and 2022

14/ That’s why on the next market bounce, we need to see a strong recovery above the key MAs

We’ll also be watching our leading market indicators that provided us a warning sign before major sharp sell-offs

If they flash red again, we’ll be shifting to a much more defensive stance

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In the world of investing, few names carry as much weight as Warren Buffett. When the Oracle of Omaha makes a move, markets take notice. Recently, his company Berkshire Hathaway has raised eyebrows by accumulating an unprecedented $300 billion in cash and Treasury bonds – a strategy that might be sending a powerful message about current market conditions.
The Master Investor's Recent Moves
Buffett's investment decisions have always commanded attention, and for good reason. His exceptional track record spans over seven decades, consistently outperforming major market indices. Under his leadership, Berkshire Hathaway has delivered average annual returns of 20%, significantly outpacing the S&P 500's 10%.
However, recent quarters have shown a notable shift in strategy. In a departure from his usual buy-and-hold approach, Buffett has been actively reducing equity positions. The numbers tell a compelling story: first-half 2024 saw stock sales reaching $97 billion, while purchases remained modest at $4.3 billion. Even more telling was the substantial reduction in Apple holdings – approximately $73 billion worth – despite it being one of Berkshire's cornerstone investments.
Understanding the Strategy
Several factors appear to be driving this conservative pivot:
Tax Considerations: The looming changes in corporate tax rates for 2025 partly explain the timing of these sales, particularly for positions with substantial unrealized gains.Valuation Concerns: The reduced appetite for new stock purchases suggests Buffett sees limited value opportunities in current market conditions.Slowing Share Buybacks: Berkshire's own stock repurchases have dramatically decreased, with only $345 million in buybacks during the latest quarter – a fraction of previous levels.
The Growing Cash Mountain
What makes this situation particularly noteworthy is the sheer size of Berkshire's cash position. With $277 billion in cash and Treasuries reported at Q2's end, and considering subsequent cash flow and interest earnings, the total likely exceeds $300 billion. This represents nearly half of Berkshire's total assets – an extraordinarily high percentage by historical standards.
Market Implications
This massive cash accumulation speaks volumes about Buffett's market outlook. Known for his "be fearful when others are greedy" philosophy, his current positioning suggests he sees better opportunities ahead. For investors, this raises important questions:
Are current market valuations sustainable?Should individual investors consider increasing their cash positions?What opportunities might emerge in a market correction?
What Investors Can Learn
While Buffett's strategy shouldn't be blindly copied, his current positioning offers valuable insights:
Patience is Crucial: Having dry powder during overvalued markets can be advantageous.Value Still Matters: Even great companies can become poor investments at the wrong price.Risk Management: Building cash reserves during uncertain times can provide both protection and opportunity.
Buffett's unprecedented cash position might be the market's most significant warning signal. While this doesn't necessarily predict an imminent crash, it suggests that one of history's most successful investors sees better opportunities on the horizon.
For individual investors, this might be the time to:
Review portfolio allocationsEnsure investment theses remain validConsider building some cash reserves for future opportunitiesFocus on quality and value rather than chasing returns
Remember, Buffett's success comes not just from knowing when to buy, but also knowing when to wait. His current $300 billion signal suggests now might be one of those waiting periods.

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