Look video of this post here.
Over the past 30 years, the purchasing power of the US Consumer Dollar has halved due to inflation. At the same time, the S&P 500 has risen 874% (7.9% annually) AFTER adjusting for inflation. Why you need to invest, in one chart…
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The most important charts and themes in markets and investing…
1) Why Does Buffett Have So Much Cash?
Berkshire Hathaway was once again a net seller of stocks in the 3rd quarter, increasing its cash pool to a record $382 billion. This figure is 250% higher than three years ago amidst a sluggish market in 2022.
Berkshire Hathaway now has over 31% of Assets in Cash, which is the highest percentage on record.
So why does Buffett hold so much cash?
Here’s his explanation at their annual meeting earlier this year:
“We would love to spend it [cash]But we won’t spend it unless we think that we are doing something that has very little risk and can make us a lot of money. We just swing to the tune we like. It’s not like I’m on a hunger strike or anything. It is just things are not interesting.”
And since then, they have continued to sell their stock holdings, including their largest position (Apple).
This may mean that things are less interesting.
One way to measure this is to look at valuations.
When Berkshire first bought Apple in 2016, it was only selling at 10x earnings and 2x sales. Currently, it trades at over 36x earnings and nearly 10x sales.
Overall US equity valuations also continue to rise. The S&P 500 CAPE ratio recently surpassed 40 for the second time in history (the first time was in 1999) and is now higher than 98% of historical readings.
2) The Longest Shutdown in History Has Ended
The House passed the spending package last night and President Trump quickly signed it into law, ending the longest government shutdown in US history at 43 days.
While there is debate about how much impact this quarter will have on the economy, the stock market is completely ignoring it. The S&P 500 rose 2.4% during the close, hitting 8 all-time highs. This was the seventh consecutive close with positive returns for the S&P 500.
3) Highest Beat Rate Since 2021
More than 80% of S&P 500 companies have topped earnings expectations so far, which is the highest level achieved since the 2nd quarter of 2021. In total, Q3 earnings came in more than 10% above analyst estimates, which is the highest upside surprise we’ve seen since Q2 2021.
With 81% of companies reporting, S&P 500 operating income rose 24% YoY, the 11th consecutive positive quarter and the highest growth rate since Q4 2021.
The big story during the quarter was margin expansion, with S&P 500 companies posting operating profit margins of 13.4%. That is the second highest record.
4) A spike in layoffs in Red October
US companies announced 153,000 layoffs in October, an increase of 175% from a year ago. This was the highest number of layoffs in October in more than 20 years and the largest in a single month in Q4 since 2008.
The US has averaged just 3,000 private sector jobs added per month over the past 3 months (ADP data), the slowest pace since the 2020 recession. A year ago, we were adding more than 200,000 jobs per month.
5) Consumer Sentiment Nears Record Low
The University of Michigan’s Consumer Sentiment Index has fallen to 50.3, the 2nd lowest reading in the survey’s history (dating back to 1952).
But at the same time, US Retail Sales grew 4.8% compared to last year, outpacing inflation of 1.8%. We’ve never seen a gap this big between what US consumers say and what they do.
6) Young People Are Eating Fewer Burritos
That was the conclusion of Chipotle’s recent earnings report, in which the company said it was losing younger, lower-income customers who have been hit harder by rising inflation and slowing wage growth. “They felt the pressure and we felt the pullback from them,” CEO Scott Boatright said.
Chipotle now expects restaurant sales to decline by single digits this year and they note higher beef prices and tariffs are impacting the company’s costs.
Chipotle shares fall 48% in 2025 vs. an 18% gain for the S&P 500. Its competitors in the “fast casual” sector, including Shake Shake (-30%) and Cava (-57%), also experienced a slowdown.
7) Putting the American Dream on hold
The average age of first-time homebuyers in the US has risen to 40 from 31 a decade ago.
At the same time, the share of first-time homebuyers in the US hit a record low of 21% this year.
The reason?
This is by far the most unaffordable housing market in history.
The housing affordability crisis is putting the American Dream on hold for an entire generation.
How can we make housing more affordable? Here are five ways (click here for our podcast discussion):
- Stop printing money.
- End the Fed’s interest rate suppression + MBS purchases.
- Fannie/Freddie break -> no more FHA coverage.
- Implement a 50% sales tax on corporate/foreign buyers and use the proceeds to cut local property taxes.
- Sell unused government land (excluding parks) for the construction of new houses.
8) Some Interesting Statistics…
a) Driverless taxi company Waymo now takes 1 million trips per month in California, a 3x increase over the last year and a 26x increase over the last two years.
b) Nvidia is now bigger than all international stock markets in the world except Japan.
c) The best performing stocks in the S&P 500 over the last 5, 10, 15, and 20 years…
d) The Magnificent 7 accounted for a record 35.9% of the S&P 500’s market cap … but only 26.8% of its returns.
And that’s all for this week. Thanks for reading!
Every week I create a video detailing the most important charts and themes in markets and investing. Subscribe to our YouTube channel HERE for the latest content.
Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosure here.
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