Warren Buffett delivers ultimate insult to stocks

By: | Updated: August 31, 2017 12:41 PM

The number of stocks on the New York Stock Exchange that fell to 52-week lows outnumbered those that reached highs in 10 out of the last 15 trading days.

Warren Buffett, the billionaire chairman and chief executive officer of Berkshire Hathaway Inc. (Image: Reuters)

It’s no wonder that the bull market in U.S. equities doesn’t seem to get any respect. Not only are prices and valuations near historical highs, but the number of stocks reaching new 52-week lows is starting to pile up at a disturbing rate. Yes, major indexes are hovering at record highs, but this latest development is a clear sign that cracks are starting to develop.

The number of stocks on the New York Stock Exchange that fell to 52-week lows outnumbered those that reached highs in 10 out of the last 15 trading days. Investors seem to be shifting into “show me” mode in that all the potential good news for equities is priced in and they are hesitant to push prices much higher without evidence the Trump administration will be able to deliver on tax reform or that and companies will be able to keep the recent momentum in earnings growth going.

That latter is going to be hard, as since the beginning of July, earnings per share forecasts for members of the S&P 500 Index are down 0.6 percent for the second half of the year, according to the equity strategists at Bloomberg Intelligence. Narrowing stock market breadth, fewer new 52-week highs, bearish momentum signals and the risk-off tone in bond markets are among the signals of a coming breakdown in stocks, JPMorgan technical analyst Jason Hunter wrote in a research note.

Perhaps Warren Buffett, the billionaire chairman and chief executive officer of Berkshire Hathaway Inc., put it best when he said in an interview with Bloomberg Television’s David Weston on Wednesday that the rally in markets over the last several years has made it harder to find bargains. Specifically, when asked why cash has been piling up at Berkshire, he said, “It tells us stocks aren’t as cheap as they’ve been most of the time.”

Buying shares after the 2008 financial crisis, Buffett said, was like “shooting fish in a barrel.” There is one redeeming value for equities, according to Buffett — at least they’re a better bet than bonds. Given that bond yields are still close to historical lows, one might call that a backhanded compliment.

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