The saying “the trend is your friend” has proven true over the past few years, but that doesn't stop some from trying to predict when the trend will turn and the market will fall into the abyss.
Take Michael Burry, the “Big Short” investor, for example: since the beginning of this bull run on October 12, 2022, he has repeatedly shorted the market, waiting for a crash that has never happened.
To be more precise, time has passed, and apart from a few corrections — bought back in weeks, sometimes even days — the economy, investor sentiment, and markets remain bullish.
Overall, the S&P 500 has soared an impressive 60% in just two years. And even now, it continues to break new records, albeit slower. Notably, bullish streaks typically last up to four years or more.
This upward trend could continue unless something unexpected and drastic shakes investor confidence, sending them rushing into safe-haven assets like gold, the US dollar, and Treasury bonds.
That said, it’s essential to acknowledge that company valuations aren’t exactly cheap—especially in the tech sector and, of course, those tied to artificial intelligence, such as Nvidia.
But what about the fact that Warren Buffet has sold 56% of his Apple stock and reduced his stake in Bank of America by 23% in recent months? Isn't that a sign of an upcoming market downturn?
It could, or it might not. The thing is, it’s not that Buffett is wrong, but we don’t know the exact reasons behind his moves or the full context in which they were made.
For example, it could be related to tax optimization, portfolio adjustments, preparing for a crisis, or maybe he learned something in conversations with management that didn’t sit well with him.
If the real reason comes to light, it’ll probably be after the fact. Making investment decisions based on this kind of news is risky — but if enough people follow suit, it can move the market.
Another essential factor to consider is that Berkshire Hathaway is one of the world’s largest reinsurance companies (insurers for insurers), so they need a lot of cash.
This is to ensure they’re ready if insurance claims spike. As a result, the company holds $288 billion in cash and short-term bonds, compared to $284 billion in investments (mainly stocks).
Looking ahead, some believe that market growth will persist until the November U.S. elections, even though the broader context isn’t ideal. After that, though, things could get more volatile.