Making sense of the markets this week: March 5, 2023

Given how strong U.S. labour numbers are, I don’t know that the “landing” is going to be all that “hard.” The earnings numbers for big U.S. retailers continue to tell a positive story, although it’s noteworthy that several of the companies listed below did try to temper shareholder expectations for the rest of 2023. (Values below all in U.S. currency.)

U.S. retail earnings highlights

Target (TGT/NYSE): Earnings per share of $1.89 (versus $1.40 predicted) and revenues of $31.40 billion (versus $30.72 billion predicted).
Dollar Tree (DLTR/NYSE): Earnings per share of $2.04 (versus $2.01 predicted) and revenues of $7.72 billion (versus $7.61 billion predicted).
Best Buy Co. (BBY/NYSE): Earnings per share of $2.61 (versus $2.11 predicted) and revenues of $14.74 billion (versus $14.72 billion predicted).
Costco Wholesale (COST/NYSE): Earnings per share of $3.30 (versus $3.21 predicted) and revenues of $55.27 billion (versus $55.58 billion predicted).
Lowe’s Companies (LOW/NYSE): Earnings per share of $2.28 (versus $2.21 predicted) and revenues of $22.45 billion (versus $22.69 billion predicted).

However, investors remain leery of jumping on board too quickly when it comes to these retail heavy hitters. Despite its first earnings beat in a year, Target shares were down 3.6% on Wednesday, and similarly Lowe’s was down 5.56% despite its good earnings news.

Warren Buffett still loves cash, America and his company—possibly in that order

Every year many investors wait for the “Oracle of Omaha”—ahem, Warren Buffett—to make his pronouncements on how he and his colleagues see the state of the markets. He usually does this through an in-depth shareholder letter and a press conference. Ostensibly, he writes the letter to shareholders of his company Berkshire Hathaway (BRK.B/NYSE) but, at this point, it’s more of a treatise to the broader investing public. (All values in this section are in U.S. currency.)

Buffett kicked off his state of the markets for 2023 by revealing that Berkshire Hathaway’s fourth quarter adjusted earnings per share came in at $3.01 (versus $3.57 predicted) and overall revenue was $78.18 billion (versus 79.93 billion predicted).

It’s not exactly great news for the last few months of last year, but it was quickly pointed out that 2022 still a great year with operating profits reaching a record $30.8 billion compared to $27.5 billion in 2021.

Berkshire Hathaway’s fourth-quarter highlights

Berkshire used earnings to buy back $2.6 billion of its own stock during the quarter, bringing it to $7.9 billion in stock buybacks for the year.
At the end of 2022, Berkshire had nearly $130 billion in cash sitting on its balance sheet read to be deployed.
Earnings from railroads, utilities, energy, and insurance underwriting were down slightly from 2021.
Inflation pressures and a strong U.S. dollar were cited as reasons for the reduced earnings in Q4.

However, Berkshire’s underachieving quarterly earnings report did nothing to dampen Buffett’s spirits, as he decisively stated:

“The amount of investment gains/losses in any given quarter is usually meaningless and delivers figures for net earnings (losses) per share that can be extremely misleading to investors who have little or no knowledge of accounting rules.”

Warren Buffett shareholder letter highlights

Berkshire Hathaway will continue to hold a “boatload” of cash and “shareholders will continue to save and prosper by retaining earnings. At Berkshire, there will be no finish line.”
Berkshire CEOs will always have a “significant part” of their net worth invested in Berkshire Hathaway shares in order to align incentives.
Buffett continues to be a cheerleader for the U.S. economy, stating that he has “been investing for 80 years—more than one third of our country’s lifetime,” and went on to say that while American investors were full of “self-criticism and self doubt, I have yet to see a time when it made sense to make a long-term bet against America.”

The 92-year-old investing legend was proud to sum up the year for his company by saying: “Berkshire now enjoys major ownership in an unmatched collection of huge and diversified businesses.” Buffett even got a touch poetic. “The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.”

Russian war machine runs on gas and oil

While day-to-day news coverage of the Russia-Ukraine war tends to focus on the battlefield and visits from big-name politicians, it may eventually be economics that bring these countries to the negotiating table.

Read the full article here