Warren Buffett spent $5.1 billion on Berkshire Hathaway share buybacks - a sign that he's confident in the market at these levels?
The Dow climbed 3.8% last week to end with its best weekly performance since June. We kick things off on Monday with more of the same on Wall Street. The Dow Jones Industrial Average (DJIA) rocketed more than 200 points higher.
Investors might be taking cues from Warren Buffett who gave the markets a fair dose of confidence over the weekend. The Oracle of Omaha announced $5.1 billion worth of share buybacks at Berkshire Hathaway. Bloomberg’s Katherine Chiglinsky summed up why this matters:
This quarter really showed us that Buffett is not just sitting on the sidelines.
Video: Warren Buffett bets on… himself
Far from sitting out this rally, Buffett has been quietly putting his capital to work, albeit in his own company. It’s a cautious vote of confidence many have been waiting for.
Dow futures opened strong on Sunday evening, and momentum carried over into Monday’s trading session. As of 9:55 am ET, the Dow Jones had gained 233.36 points or 0.85% to climb to 27,666.84.
The S&P 500 rallied 0.2%, while the Nasdaq edged 0.17% lower after another blistering run last week.
Buffett was suspiciously quiet when the crisis began back in March. He only made one public move: selling his airlines. Many commentators saw his silence as a sign that another crash was coming.
In true Buffett fashion, however, he was making quiet, cautious moves. He bought more Bank of America stock and struck a natural gas deal. Now, it turns out he bought back $5.1 billion Berkshire Hathaway stock through May and June.
If you take all of those together, it shows that Buffett is willing to put some of his money to work in this climate.
Even though Buffett is staying “close to home,” as Chiglinsky put it, it shows a level of confidence in the stock and the broader market at these levels.
To put it into context, the $5.1 billion buyback is the biggest in the company’s history for a single quarter. It’s more than Buffett bought back in the whole of 2019.
After Congress failed to reach an agreement on the next relief package last week, President Trump took matters into his own hands. He signed a series of executive orders extending the stimulus measures.
Crucially, the unemployment benefit boost will continue, although it’s now $400 per week instead of $600. Trump extended the moratorium on evictions and delayed student loan interest repayments until the end of the year.
Video: Trump signs executive orders on stimulus
Trump also signed an executive order granting a payroll tax holiday for Americans earning less than $100,000 per year. The order will be effective from August 1st “most likely.”
Traders will want to see a full package from Congress, but the executive orders should provide a temporary bandaid after much of the support measures ran out in July.
There was also good news out of China this morning. Industrial activity is back at pre-coronavirus levels. The data showed that deflation also eased in July. Florian Ielpo, head of macroeconomic research at Unigestion said the numbers were a boon for the global economy.
China is so much in advance in this process of lockdowns and exiting lockdown, that any good signs for the Chinese economy is essential (for the world economy).
It’s hoped that European and American industrial output will follow suit as the pandemic eases.
Last modified: September 23, 2020 2:19 PM