May 2025
Market Commentary
Warren Buffett is bowing out. Good timing?
(4 min read)
7th May 2025
Warren Buffett - the renowned billionaire investor - will step down from Berkshire Hathaway at the end of the year after building the business to a value of $1.16 trillion over six decades.
The conglomerate currently sits on a record $347 billion of cash, suggesting the ‘Sage of Omaha’ has recently struggled to find long-term investment ideas at current market valuations. Of course, his retirement is all a coincidence as Buffett is 94. However, with the US economy contracting by 0.3% in the first quarter of 2025, the first downturn in three years, it is worth assessing the potential economic outlook on markets in the context of Berkshire Hathaway’s cash levels.
Scroll down to learn more about Warren Buffett and Berkshire Hathaway.
Clearly, the data has deteriorated recently. However, it’s difficult to gauge how much of this reflects a natural slowdown following companies and consumers ‘front running’ transactions ahead of the potential imposition of tariffs – activity which may have contributed to the stronger Q4 2024 GDP figures.
As we all know, the economy and markets are all about confidence and currently that does not look good. Chart 1 below illustrates how US company CEOs are forecasting a slowdown in revenues, profitability, capital expenditure (Capex) and hiring. The increase in the number of CEOs forecasting a negative outturn has been significant in recent months.
Chart 1
CEO forecasts for decreased revenue, profitability, capex and hiring. Percentage of CEOs forecasting decrease over next 12 months vs last 12 months.
Source: JP Morgan Market Watch, May 2025
Chart 2 below, as well as confirming the CEO view, also suggests that the consumer backdrop is unsurprisingly heading in the same direction driven by higher inflationary pressures caused by potential tariffs at a time when the savings rate is low, and the employment outlook is weakening. Consumer participation in the stock market is high and current volatility contributes to uncertainty. Markets at this stage of the cycle would expect imminent interest rate cuts but, in the face of criticism from President Trump, the Fed might be slow to act as a price worth paying for maintaining credibility. The more the Fed holds off on cutting, the more aggressive it will need to be when it moves.
Chart 2
Consumer and CEO confidence turning down
Source: Artemis Investment Management LLP, April 2025
What does this mean for client portfolios?
Our overweight exposure to UK equities - where we see longer term value - at the expense global and US markets has seen client portfolios hold up comparatively well during recent market volatility. The real pain has been felt in the US mega cap ‘Magnificent 7’ where we have had limited exposure due to overstretched valuations. Diversification has served client portfolios well and we believe this will continue.
Time will tell whether Buffett’s retirement was good timing ahead of potential turmoil or whether his cash pile reflects the robustness of corporate America and its ability to withstand potential turbulence ahead.
Peter Geikie-Cobb | Head of Investment Research
Montgomery Associates
Who is Warren Buffett?
Warren Buffett’s investment style – rooted in value investing, patience, and a preference for high-quality businesses with durable competitive advantages – has defined Berkshire Hathaway’s success. Known for buying companies with strong fundamentals and holding them for the long term, Buffett has famously avoided speculation, complex derivatives, and trendy sectors he doesn’t understand. However, in today’s market environment, where high-growth technology firms often dominate and valuations remain elevated, opportunities that meet Buffett’s strict criteria have become harder to find. His growing cash position may reflect this shift. With markets increasingly driven by short-term sentiment, passive flows, and speculative behaviour, Buffett’s approach, while timeless in principle, may be more challenging to implement in practice – especially at the scale Berkshire now operates.
Glossary
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