What to know today

  • Bullishness abounds.
  • Buffett trims his EV position.
  • Eyes on the consumer.
markets

All Up and To the Right, All the Time

Stocks only want to go higher.

There is nothing more bullish than new all-time highs.

And, friend, new all-time highs are booming.

The S&P 500 recorded its 30th all-time closing high of 2024 on Monday. The Nasdaq Composite joined the fun, posting its sixth consecutive record closing high.

Only the Dow Jones Industrial Average among the major US indexes missed out. The Russell 2000 Index is also lagging.

Still, big technology names continue to pull the broader market to new heights, helped by optimism about earnings as well as hope the Federal Reserve will cut rates soon.

Multiple financial firms have raised their end-of-year targets for the S&P 500, including Citigroup, Goldman Sachs, and Evercore ISI.

Deteriorating breadth numbers remain a bit of a concern. Not a lot of stocks are participating in the upside.

But, for now, investors, traders, and speculators are on an all-time high.

The S&P 500 established a new all-time high for the 30th time on Monday, June 17, 2024.

Federal Reserve Bank of Philadelphia President Patrick Harker, the first among seven central bankers to speak on Monday and Tuesday, said one rate cut is appropriate this year based on his current forecast.

Harker also said he’d like to see several more months of incoming data to support a course change. Uncertainty calls for a cautious approach, he said at an event in Philadelphia.

Data, of course, will determine the timing and number of cuts, he said.

Expect to hear variations on that theme from Richmond Fed President Tom Barkin, Fed Governor Adriana Kugler, Dallas Fed President Laurie Logan, St. Louis Fed President Alberto Musalem, and Chicago Fed President Austan Goolsbee today.

Note that the US stock and bond markets are closed on Wednesday in observance of Juneteenth Day.

We’ll be back on Thursday.

deep dive

Charlie’s Choice

Berkshire Hathaway bought BYD for many good reasons.

It’s the top electric vehicle maker in the world, its stock has had an exponential run, and Warren Buffett’s Berkshire Hathaway $BRKA is selling shares in a company he originally invested in because of a key executive.

It’s not Tesla $TSLA, it’s Chinese automaker BYD Company $BYDDY, and this has nothing to do with Elon Musk.

Buffett credits his late collaborator Charlie Munger with the decision to buy 225 million shares of BYD for $230 million back in September 2008. Berkshire’s stake then was 10 percent.

Berkshire started selling shares in 2022 after a 600 percent-plus run for BYD. The sale of approximately 1.3 million shares on June 11 reduced its stake from 7.02 percent to 6.90 percent.

Following more than a dozen separate sales Berkshire still holds about 75.7 million BYD shares, with a current market value of about $2.3 billion.

The stock is down about 30 percent from its June 2022 all-time high.

BYD, which took over the top spot in the global rankings from Tesla in the fourth quarter of 2023, said EV shipments were up 27 percent from January through May to approximately 1.3 million.

BYD’s Hong Kong listing was up 1.74 percent on Monday and is up 8.86 percent in 2024.

Its US-listed American Depositary Receipt was up more than 2 percent on Monday and is up 7.44 percent this year.

“I have never helped do anything at Berkshire [Hathaway] that was as good as BYD and I only did it once,” the 99-year-old Munger said at a virtual annual meeting in February 2023.

BYD Company $BYDDY is up 7.44 percent in 2024, while Tesla $TSLA is down 24.56 percent.

Berkshire usually invests in US companies. But Buffett made an exception for Shenzhen-based BYD, at Munger’s urging.

Munger explained his decision-making process at Berkshire’s annual meeting in 2009, getting excited as he discussed founder Wan Chuanfu and his team’s “miracles.”

Chuanfu was 43 at the time, but BYD was already one of the world’s leading manufacturers of rechargeable lithium batteries. Next it established a huge position as a cell phone components provider.

“And then, finally, not satisfied with having worked a couple of miracles, he decided he would go into the automobile business with nearly zero experience,” Munger said.

Long story short, BYD wasn’t a garage-based early stage startup when Munger began his due diligence.

He concluded, “We have to use the direct power of the Sun and we can't do that without marvellous batteries and BYD is in the sweet spot on that stuff.”

Under the “not normal” Chuanfu BYD built the best-selling single model in China with very little capital.

“It may be a small company but its ambitions are large and I don't want to bet against 177,000 Chinese engineers led by Wang Chuanfu,” Munger said in 2009.

In an interview with CNBC International in 2023, Munger said he’d still pick BYD over Tesla.

“Tesla last year reduced its prices in China twice. BYD increased its prices. We are direct competitors. BYD is so much ahead of Tesla in China ... it’s almost ridiculous.”

Munger said Chuanfu was unusual and called him a genius and a workaholic.

He described Elon Musk as talented and “peculiar,” though he did credit Tesla’s achievements in the auto industry as a “minor miracle.”

deep dive |
June 18, 2024

Charlie’s Choice

WEEKLY MARKET OUTLOOK

The Most Hopeful Sign

Consumers continue to show their strength.

We got into it a little bit yesterday about the University of Michigan’s preliminary consumer sentiment data for May, highlighting, by way of contrast, an oft-overlooked report from the National Retail Foundation and emphasizing actions over feelings.

There is no question here or anywhere else that consumers are still aggravated by inflation. That experience rather than the recent rate of change is reflected in sentiment data.

As Mish Schneider notes in her Weekly Market Outlook, “Even though some numbers have come down, that's more of a disinflation, not deflation.”

And that means prices have come down from the high “but are still very, very high compared to where they were pre -COVID.”

Today at 8:30 a.m. ET we’ll get another set of retail sales data, this from the US Census Bureau.

The FactSet consensus expects an uptick of 0.3 percent in May from April. Sales were flat from March to April.

The SPDR S&P Retail ETF $XRT is up 1.67 percent so far in 2024.

Of all the charts Mish pulls up this week, the SPDR S&P Retail ETF $XRT “looks the best.”

“We've got to keep our eyes here on the consumer,” Mish advises, “and that is really the most hopeful sign of the market.”

XRT is showing multiple positive signs from a technical perspective and is starting to look a little bit oversold, with a slight bearish divergence versus the SPDR S&P 500 ETF Trust in terms of momentum.

“This is really what you have to watch,” according to Mish.

Mish highlights Boot Barn $BOOT, one of XRT’s top five holdings, as a potential opportunity heading into back-to-school shopping season.

Keep your eyes on XRT, BOOT, and retail as a sign of strength.

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