Warren Buffett: 'The long-term trend is up' 🤓
Plus a charted review of the macro crosscurrents 🔀
OMAHA, Neb. — Warren Buffett, CEO of Berkshire Hathaway, remains bullish on the long run. At the same time, he acknowledges that people will continue to be distracted by short-term market moves, which will continue to be unpredictable.
“The long-term trend is up,“ Buffett said at Berkshire’s annual shareholders meeting on Saturday.
“Nobody knows what the market is going to do tomorrow, next week, next month,” he added. “But they spend all their time talking about it, because it's easy to talk about. But it has no value.”
Buffett was responding to a shareholder’s question about Berkshire’s massive cash pile, which grew to $347 billion in Q1. He reiterated what he said in his annual letter, which was that his preference is not to be sitting in so much cash. But he made clear that holding cash was smarter than making brash acquisitions.
“We would rather have conditions that have developed where we would have like $50 billion or something like that,” he said. “But that just isn’t the way the business works.”
Buffett explained if he acquired businesses or accumulated stock solely for the sake of getting that cash pile down to $50 billion, “That would be the dumbest thing in the world to invest in that manner.”
For now, Buffett believes it’s better to keep dry powder for when Berkshire could be “bombarded with offerings” that offer better risk-reward opportunities than what he’s seeing today.
“We have made a lot of money by not wanting to be fully invested at all times,” he said.
Of course, this strategy is not for everyone. Buffett and Berkshire are in the business of acquiring companies and picking stocks. In fact, Buffett has historically recommended most people to invest in passively managed S&P 500 index funds.
“We don’t think it’s improper for people who are passive investors to just make a few simple investments and sit for their life in them,” he said. “But we’ve made the decision to be in this business. So we think we can do a little better than that.“
Buffett downplays recent market volatility, warns of a ‘hair curler’ event 📉
A shareholder asked Buffett specifically about the market swings we experienced in the past month.
“What has happened in the last 30, 45 days, 100 days … it’s really nothing,” he said. “This is not a huge move. … This has not been a dramatic bear market or anything of the sort.“
Indeed, you can get smoked in the short-term. It’s one of the truths about the stock market.
“If it makes a difference to you whether your stocks are down 15% or not, you need to get a somewhat different investment philosophy,” Buffett said. “The world is not going to adapt to you. You’re going to have to adapt to the world.”
Buffett cautioned that just because he doesn’t think the recent market swings were notable doesn’t mean we won’t get a more violent downturn some time in the future. He said “certainly in the next 20 years” we will get a “hair curler” event.
“The world makes big, big, big mistakes, and surprises happen in dramatic ways,” he said. “The more sophisticated the system gets, the more the surprises can be out of right field. That’s part of the stock market. That’s what makes it a good place to focus your efforts if you have the proper temperament for it — and a terrible place to get involved if you get frightened by markets that decline and get excited when stock markets go up. I don’t mean to sound particularly critical. People have emotions. But you have to check them at the door when you invest."
Zooming out 🔭
Buffett covered a lot during his five-hour long Q&A. His comments on protectionist trade policy and pessimism toward the U.S. economy were particularly interesting. A lot of media outlets are covering it. I may write about it later.
But the big news out of this year’s event was Buffett’s announcement that he intends to step down as CEO as he makes way for vice chairman Greg Abel to succeed him.
“I think the time has arrived where Greg should become the chief executive officer of the company at year-end,” Buffett said.
Buffett’s time at the helm of Berkshire may be coming to an end. But his timeless investing lessons will surely endure.
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More of Warren Buffett’s insights on TKer:
WATCH 📺
I joined ABC News Live on Saturday to discuss Warren Buffett’s shock retirement announcement and other highlights from Berkshire Hathaway’s annual meeting. Watch here»
Review of the macro crosscurrents 🔀
There were several notable data points and macroeconomic developments since our last review:
📈 The stock market rallied last week, with the S&P 500 climbing 2.9% to close at 5,686.67. It’s now down 7.4% from its February 19 closing high of 6,144.15 and up 59% from its October 12, 2022 closing low of 3,577.03. For more on how the market moves, read: One of the most misunderstood moments in stock market cycles ⏱️
👍 The labor market continues to add jobs. According to the BLS’s Employment Situation report released Friday, U.S. employers added 177,000 jobs in April. The report reflected the 52nd straight month of gains, reaffirming an economy with growing demand for labor.
Total payroll employment is at a record 159.5 million jobs, up 7.2 million from the prepandemic high.
The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — stood at 4.2% during the month. While it continues to hover near 50-year lows, the metric is near its highest level since November 2021.
While the major metrics continue to reflect job growth and low unemployment, the labor market isn’t as hot as it used to be.
For more on the labor market, read: The labor market is cooling 💼 and 9 once-hot economic charts that cooled 📉
💸 Wage growth ticks lower. Average hourly earnings rose by 0.2% month-over-month in April, down from the 0.3% pace in March. On a year-over-year basis, this metric is up 3.8%.
For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed's war on inflation 📈
💼 Job openings fall. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.19 million job openings in March, down from 7.48 million in February.
During the period, there were 7.08 million unemployed people — meaning there were 1.01 job openings per unemployed person. This continues to be one of the more obvious signs of excess demand for labor. However, this metric has returned to prepandemic levels.
For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨 and Revisiting the key chart to watch amid the Fed's war on inflation 📈
👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.56 million people in March. While challenging for all those affected, this figure represents just 1.0% of total employment. This metric remains below prepandemic levels.
For more on layoffs, read: Every macro layoffs discussion should start with this key metric 📊
Hiring activity continues to be much higher than layoff activity. During the month, employers hired 5.4 million people.
That said, the hiring rate — the number of hires as a percentage of the employed workforce — has been trending lower, which could be a sign of trouble to come in the labor market.
For more on why this metric matters, read: The hiring situation 🧩
🤔 People are quitting less. In March, 3.3 million workers quit their jobs. This represents 2.1% of the workforce. While the rate is above recent lows, it continues to trend below prepandemic levels.
A low quits rate could mean a number of things: more people are satisfied with their job; workers have fewer outside job opportunities; wage growth is cooling; productivity will improve as fewer people are entering new unfamiliar roles.
For more, read: Promising signs for productivity ⚙️
📈 Job switchers still get better pay. According to ADP, which tracks private payrolls and employs a different methodology than the BLS, annual pay growth in April for people who changed jobs was up 6.9% from a year ago. For those who stayed at their job, pay growth was 4.5%.
💵 Key labor costs metric ticks up. The employment cost index in the Q1 was up 0.9% from the prior quarter.
For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed's war on inflation 📈
💼 Unemployment claims tick higher. Initial claims for unemployment benefits rose to 241,000 during the week ending April 26, up from 223,000 the week prior. This metric continues to be at levels historically associated with economic growth.
For more context, read: A note about federal layoffs 🏛️ and The labor market is cooling 💼
👎 Consumer vibes deteriorate. The Conference Board’s Consumer Confidence Index fell in April. From the firm’s Stephanie Guichard: “The decline was largely driven by consumers’ expectations. The three expectation components—business conditions, employment prospects, and future income—all deteriorated sharply, reflecting pervasive pessimism about the future. Notably, the share of consumers expecting fewer jobs in the next six months (32.1%) was nearly as high as in April 2009, in the middle of the Great Recession. In addition, expectations about future income prospects turned clearly negative for the first time in five years, suggesting that concerns about the economy have now spread to consumers worrying about their own personal situations.”
“Consumers’ Perceived Likelihood of a U.S. Recession over the Next 12 Months rose in February.”
Relatively weak consumer sentiment readings appear to contradict resilient consumer spending data. For more on this contradiction, read: CHART: The confusing state of the economy 📊 and We're gonna get ambiguous signals in the economic data 😵💫
👎 Consumers feel worse about the labor market. From The Conference Board’s April Consumer Confidence survey: “Consumers’ views of the labor market weakened in April. 31.7% of consumers said jobs were ‘plentiful,’ down from 33.6% in March. 16.6% of consumers said jobs were ‘hard to get,’ up from 16.1%.”
Many economists monitor the spread between these two percentages (a.k.a., the labor market differential), and it’s been reflecting a cooling labor market.
For more on the labor market, read: The labor market is cooling 💼
🎈 Inflation cools. The personal consumption expenditures (PCE) price index in March was up 2.2% from a year ago. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 2.6% during the month, down from February’s 3.0% rate. While it’s above the Fed’s 2% target, it remains near its lowest level since March 2021.
On a month over month basis, the core PCE price index was up 0.03%. If you annualized the rolling three-month and six-month figures, the core PCE price index was up 3.5% and 3.0%, respectively.
For more on inflation and the outlook for monetary policy, read: The Fed closes a chapter with a rate cut ✂️ and The other side of the Fed's inflation 'mistake' 🧐
🛍️ Consumer spending ticks up. According to BEA data, personal consumption expenditures increased 0.7% month over month in March to a record annual rate of $20.65 trillion.
Adjusted for inflation, real personal consumption expenditures increased by 0.7%
.For more on consumer spending, read: Americans have money, and they're spending it 🛍️ and 9 once-hot economic charts that cooled 📉
💳 Card spending data is holding up. From JPMorgan: “As of 22 Apr 2025, our Chase Consumer Card spending data (unadjusted) was 1.0% below the same day last year. Based on the Chase Consumer Card data through 22 Apr 2025, our estimate of the US Census April control measure of retail sales m/m is 0.50%.”
From BofA: “Total card spending per HH was down 1.9% y/y in the week ending Apr 26, according to BAC aggregated credit & debit card data. Easter Sunday (historically lower spending Sunday) timing mismatch (4/20/25 vs 3/31/24) likely drove the y/y rate decline. Meanwhile, total card spending per HH was up 0.9% on a 52-week basis in the six days after Easter Sunday.“
April spending is likely being boosted by consumers pulling forward purchases in an attempt to front-run tariffs.
For more on consumer spending, read: We're gonna get ambiguous signals in the economic data 😵💫 and Americans have money, and they're spending it 🛍️
⛽️ Gas prices tick higher. From AAA: “The national average for a gallon of regular saw few changes over the past week, going up slightly to $3.18. Even though this is the time of year when we typically see seasonal increases and rising demand, the price of crude oil has been plunging. A couple of factors are at play: economic concerns and the decision by OPEC+ (the group of oil-producing countries) to increase output and add more oil to the market, despite tepid demand. The lower the price of oil, the less drivers pay at the pump. The national average is almost 50 cents less than it was this time last year.”
For more on energy prices, read: Higher oil prices meant something different in the past 🛢️
🚢 Imports surge. Here’s Bloomberg on March Census data: “The US merchandise-trade deficit unexpectedly widened in March to a record as companies continued importing goods to get ahead of tariffs, indicating a large hit to the economy in the first quarter. … In the March merchandise trade report, imports rose 5% to $342.7 billion, led by a record surge in consumer goods, while inbound shipments of motor vehicles and capital goods also increased. Exports increased 1.2%.“
For more on the implications of purchases pulled forward ahead of tariffs, read: A BIG economic question right now 🤔 and CHART: The confusing state of the economy 📊
🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.76% from 6.81% last week. From Freddie Mac: “Mortgage rates again declined this week. In recent weeks, rates for the 30-year fixed-rate mortgage have fallen even lower than the first quarter average of 6.83%.”
There are 147.8 million housing units in the U.S., of which 86.1 million are owner-occupied and about 34.1 million of which are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.
For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖
🏠 Home prices rise. According to the S&P CoreLogic Case-Shiller index, home prices rose 0.3% month-over-month in February. From S&P Dow Jones Indices’ Nicholas Godec: “Even with mortgage rates remaining in the mid-6% range and affordability challenges lingering, home prices have shown notable resilience. Buyer demand has certainly cooled compared to the frenzied pace of prior years, but limited housing supply continues to underpin prices in most markets. Rather than broad declines, we are seeing a slower, more sustainable pace of price growth.”
🔨 Construction spending ticks lower. Construction spending increased 0.7% to an annual rate of $2.196 trillion in March.
👎 Manufacturing surveys weren’t great. From S&P Global’s April U.S. Manufacturing PMI: “Manufacturing continued to flat-line in April amid worrying downside risks to the outlook and sharply rising costs. Factory output fell for a second successive month as tariffs were widely blamed on a slump in export orders and curbed spending among customers more broadly amid rising uncertainty. Although the survey saw some producers report evidence of beneficial tariff-related switching of customer demand away from imports, any such sales increase was countered by worries over tariff-related disruptions to supply chains and lost export sales.”
The ISM Manufacturing PMI also deteriorated, signaling contraction in the industry.
Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.
For more on soft sentiment data, read: The confusing state of the economy 📊 and What businesses do > what businesses say 🙊
👎 Texas area managers are worried about the future. From the Dallas Fed’s Texas Manufacturing Outlook Survey: “Perceptions of broader business conditions continued to worsen notably in April. The general business activity index fell 20 points to -35.8, its lowest reading since May 2020. The company outlook index also retreated to a postpandemic low of -28.3. The outlook uncertainty index pushed up 11 points to 47.1.”
Comments from survey respondents were riddled with references to “uncertainty” related to the Trump administration’s tariff policy. They included:
“There is really no way to predict anything accurately six months out or even six weeks out now for our industry due to the tariff and trade uncertainty.“
“President Trump, tariffs and maximum business uncertainty [are issues affecting our business]. [We see a] probable recession soon.“
“The current economic environment is confusing. President Trump keeps things in turmoil, and we do not know what he will do next.“
“Tariffs and tariff uncertainty are wreaking havoc on our supply lines and capital spending plans.“
“Tariffs are causing uncertainty and a reduction in demand for our products. We buy all raw materials domestically but are still experiencing adverse business climate due to reduction in demand.“
“Tariffs. Tariffs. Tariffs. There was a better way to do this.“
For more on soft sentiment data, read: The confusing state of the economy 📊
🇺🇸 GDP declined in Q1. The BEA estimated that real GDP contracted at a 0.3% rate in Q1. This is down from the +2.4% growth rate in Q4 2024.
However, this was driven by a spike in imports. Negative net exports cut a record 4.83 percentage points from the GDP growth rate.
Because the way GDP is calculated includes a lot of quirks, economists will often point to “real final sales to private domestic purchasers” to get a better sense of the underlying health of the economy. This metric excludes net exports, inventory adjustments, and government spending. That metric grew at a respectable 3.0% rate in Q1, up modestly from the 2.9% rate in Q4.
For more on GDP, read: What does the negative GDP report really tell us? 🤔
🏭 Business investment activity ticks higher. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — rose 0.1% to $75.05 billion in March.
Core capex orders are a leading indicator, meaning they foretell economic activity down the road. The growth rate had leveled off a bit, but they’ve perked up in recent months. However, economists caution that this may reflect a pull forward in sales ahead of new tariffs.
For more on core capex, read: A BIG economic question right now 🤔 and 9 once-hot economic charts that cooled 📉
📈 Key recession indicators point to growth. Here’s a great chart from economist Justin Wolfers tracking the trajectory of key measures of economic activity.
From Wolfers: “My guess: There remains a *substantial chance* that the NBER will at some point declare there's a 2025 recession. But given that other reliable data suggest the economy was still humming along through most of Q1, it's unlikely that recession began in Jan or Feb.“
For more on how recessions are defined, read: You call this a recession? 🤨
📉 Near-term GDP growth estimates are tracking positive. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 1.1% rate in Q2.
For more on GDP and the economy, read: 9 once-hot economic charts that cooled 📉 and You call this a recession? 🤨
🏢 Offices remain relatively empty. From Kastle Systems: “Peak day office occupancy was 63% on Tuesday last week, down six tenths of a point from the previous week. Washington, D.C. experienced the biggest single-day drop, falling more than eight points on Wednesday as local government offices were closed to observe Emancipation Day. New York’s high was 62.9% on Tuesday, down nearly six points from the previous week. The average low was on Friday at 35.2%, down 1.1 points from the previous week.”
For more on office occupancy, read: This stat about offices reminds us things are far from normal 🏢
Putting it all together 🤔
🚨 The tariffs announced by President Trump as they stand threaten to upend global trade — with significant implications for the U.S. economy, corporate earnings, and the stock market. Until we get some more clarity, here’s where things stand:
Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.
Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Job creation, while cooling, also remains positive, and the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market.
But growth is cooling: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like excess job openings have faded. It has become harder to argue that growth is destiny.
Actions speak louder than words: We are in an odd period given that the hard economic data has decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.
Stocks are not the economy: Analysts expect the U.S. stock market could outperform the U.S. economy, thanks largely due to positive operating leverage. Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.
Mind the ever-present risks: Of course, this does not mean we should get complacent. There will always be risks to worry about — such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, cyber attacks, etc. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.
Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect to experience as they build wealth in the markets. Always keep your stock market seat belts fastened.
Think long term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak long-term investors can expect to continue.
For more on how the macro story is evolving, check out the previous review of the macro crosscurrents »
Key insights about the stock market 📈
Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.
10 truths about the stock market 📈
The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.
The makeup of the S&P 500 is constantly changing 🔀
Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.
The key driver of stock prices: Earnings💰
For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings have a very tight statistical relationship.
Stomach-churning stock market sell-offs are normal🎢
Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.
How the stock market performed around recessions 📉📈
Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.
In the stock market, time pays ⏳
Since 1928, the S&P 500 generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.
What a strong dollar means for stocks 👑
While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.
Economy ≠ Stock Market 🤷♂️
The stock market sorta reflects the economy. But also, not really. The S&P 500 is more about the manufacture and sale of goods. U.S. GDP is more about providing services.
Stanley Druckenmiller's No. 1 piece of advice for novice investors 🧐
…you don't want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there's overcapacity and they're losing money. What about when they're losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it's going to be in 18 to 24 months as opposed to now. If you buy it now, you're buying into every single fad every single moment. Whereas if you envision the future, you're trying to imagine how that might be reflected differently in security prices.
Peter Lynch made a remarkably prescient market observation in 1994 🎯
Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That's all there is to it.
Warren Buffett's 'fourth law of motion' 📉
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
Most pros can’t beat the market 🥊
According to S&P Dow Jones Indices (SPDJI), 65% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2024. As you stretch the time horizon, the numbers get even more dismal. Over a three-year period, 85% underperformed. Over a 10-year period, 90% underperformed. And over a 20-year period, 92% underperformed. This 2023 performance follows 14 consecutive years in which the majority of fund managers in this category have lagged the index.
Proof that 'past performance is no guarantee of future results' 📊
S&P Dow Jones Indices found that funds beat their benchmark in a given year are rarely able to continue outperforming in subsequent years. For example, 334 large-cap equity funds were in the top half of performance in 2021. Of those funds, 58.7% came in the top half again in 2022. But just 6.9% were able to extend that streak through 2023. If you set the bar even higher and consider those in the top quartile of performance, just 20.1% of 164 large-cap funds remained in the top quartile in 2022. No large-cap funds were able to stay in the top quartile for the three consecutive years ending in 2023.
The odds are stacked against stock pickers 🎲
Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. In fact, most professional stock pickers aren’t able to do this on a consistent basis. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 24% of the stocks in the S&P 500 outperformed the average stock’s return from 2000 to 2022. Over this period, the average return on an S&P 500 stock was 390%, while the median stock rose by just 93%.
