Stock Market: Hold, but Buy Antacids

Gloom on 4/29, more declines on 5/2, cautious rise on 5/3, snapback on 5/4.

Gloom on Friday
The NASDAQ index closed last Friday, April 29th, with the worst showing of any month since the financial crisis year of 2008:

The broad selloff has erased trillions of dollars in market value from the tech-heavy gauge, with investors souring on shares of everything from software and semiconductor companies to social-media giants.

The Nasdaq dropped 4.2% Friday, bringing its losses for the month to more than 13%, its worst showing since October 2008. The index is down 21% in 2022, its worst start to a year on record.

The explanations were high inflation, the raising of interest rates by the Federal Reserve to cool off the economy, the COVID-19 lockdown in China, a possible expansion of the war in Ukraine, and lowered corporate outlooks.

Warren Buffett prepared to speak to Berkshire
shareholders this Saturday. (WSJ photo)

Buffett: Buying Opportunities
Though the gloom was palpable over the weekend, experienced hands began to see buying opportunities. Of course, none are more experienced and successful as Warren Buffett:

As recently as February, Warren Buffett lamented he wasn’t finding much out there that was worth buying.

That is no longer the case.

After a yearslong deal drought, Mr. Buffett’s Berkshire Hathaway Inc. BRK.B 2.45% is opening up the spending spigot again. It forged an $11.6 billion deal to buy insurer Alleghany Corp. Y -0.26% , poised to be Berkshire’s biggest acquisition in six years. It bought millions of shares of HP Inc. HPQ 3.88% and Occidental Petroleum Corp. OXY 3.93% And it dramatically ramped up its stake in Chevron Corp. CVX 3.14% , making the energy company one of Berkshire’s top four stock investments.

...While he finds speculative bets “obscene,” the pickup in volatility across the markets has had one good effect, he said: It has allowed Berkshire to find undervalued businesses to invest in again following a period of relative quiet.

Wednesday Snapback
Though the Federal Reserve raised the Federal Funds rate by 50 basis points, the market had been expecting worse. As soon as Chairman Jay Powell said that a 75-bp increase was off the table, the stock market took off:

Major indexes were at first little changed Wednesday after the Fed announced it would raise interest rates by half a percentage point and begin to shrink its $9 trillion asset portfolio next month. Investors had widely expected both decisions heading into the conclusion of the central bank’s policy meeting.

What caught some by surprise was Mr. Powell saying the Fed wasn’t “actively considering” raising interest rates by 0.75 percentage point at a future meeting. Federal-funds futures, which traders use to track interest-rate expectations, had previously shown the market pricing in a 95% chance of the Fed making such a move in June.

Stocks soared after Mr. Powell’s remarks, with the Dow Jones Industrial Average finishing up 932.27 points, or 2.8%, to 34061.06, marking its biggest one-day gain since November 2020. The S&P 500 jumped 124.69 points, or 3%, to 4300.17 for its best day since May 2020, while the Nasdaq Composite added 401.10 points, or 3.2%, to 12964.86.

There's always a possibility of negative surprises, but on balance I don't think apocalyptic scenarios are likely. I am holding on to my portfolio and am neither a buyer or a seller.