Stock investors turned gloomy on Friday, shifting into a risk-off mode that ended with the S&P 500 having its worst day of the year. Some weak economic surveys and disappointing guidance from retailer Walmart raised worries about the outlook.

Billionaire Warren Buffett's annual letter to Berkshire Hathaway investors extended the vibe.

On the one hand, it's hard for anyone to complain about the company's stock performance -- it beat the S&P 500 last year and is beating it again in 2025. Operating profit after taxes rose to a new quarterly record in the results.

On the other hand, Buffett is sitting on an inordinate amount of cash, particularly for someone who says he would rather have his money invested in "good businesses." Apparently he's even skeptical about his own firm -- he's declined to buy back any shares of Berkshire for the past two quarters.

There will be a lot to watch more to talk about this week. One highlight will be the personal consumption expenditures price index -- the Federal Reserve's preferred inflation gauge -- which is published on Friday. Traders are already bringing forward expectations for the next interest-rate cut, albeit only slightly, to see a quarter-point drop in the first half of the year instead of the second. Bond yields are also lower.

Nvidia, the semiconductor giant that single-handedly accounted for 20% of the S&P 500's gain last year, reports results on Wednesday.

To be fair, Friday's mini-slump on the market could be a blip. Of course shares are richly valued, but that doesn't mean they can't still go higher. And Buffett isn't always right. Perhaps he doesn't want to make any big bets right before he steps down, which he said will happen soon. A big cash pile gives his successor, Greg Abel, plenty of firepower.

But this is a moment for traders to ask themselves whether Buffett has a point.

-- Brian Swint

*** Join Barron's senior managing editor Lauren R. Rublin and deputy editor Ben Levisohn today at noon when they talk with Holly McDonald, CIO of Bessemer Trust, about market moves, industries, stocks, and investment trends. Sign up here.

***

Berkshire Pays Big Tax Bill But Lacks Stock Buybacks

Berkshire Hathaway's surging fourth-quarter operating profit masked a couple of underlying issues, namely a record tax bill for 2024 largely because of the sale of appreciated Apple shares, and a lack of stock buybacks that could hint CEO Warren Buffett doesn't see the conglomerate's own stock as cheap.

   -- Berkshire's Class A stock, at $718,750 on Friday, is just below a recent 
      record, valuing Buffett's company at over $1 trillion. But Berkshire's 
      stock buybacks last year of $2.9 billion were the lowest since 2018 and 
      down from 2023 and the record $27 billion in 2021. 
 
   -- Berkshire's fourth-quarter earnings were powered largely by strong 
      insurance results and higher interest income on Berkshire's record cash 
      holdings of $334 billion at year-end. Berkshire's Geico's pretax 
      underwriting profit more than doubled to $7.8 billion in 2024, but it may 
      have peaked given its nearly 20% profit margin. 
 
   -- The record cash hoard didn't seem to thrill Buffett, who said in a letter 
      to shareholders that they would never prefer ownership of cash-equivalent 
      assets over the ownership of good businesses, even if they are only 
      partially owned. 
 
   -- Berkshire Hathaway paid $28.5 billion in 2024 taxes, including $26.8 
      billion in taxes to the U.S. government, largely related to the sale of 
      about 600 million shares of highly appreciated Apple stock. It ended 2024 
      with 300 million Apple shares now valued at $74 billion. 

What's Next: Buffett, 94, told shareholders that "it won't be long before Greg Abel replaces me as CEO." Abel is Buffett's likely successor, but it's unclear if Buffett fans will transfer their embrace of Berkshire's CEO when Abel takes command.

-- Andrew Bary and Janet H. Cho

***

Legal Questions Cloud Musk's Worker Demand as Uncertainty Spreads

Lawmakers and others joined a growing backlash to Elon Musk's email demanding that federal government employees report their work accomplishments for last week to justify their continued employment. Some questioned the legality of the demand as Musk continues his purge of federal payrolls.

   -- The Office of Personnel Management, which is implementing Musk's 
      cost-cutting plans, issued the email on Saturday, and Musk said on X that 
      failure to reply would be taken as a resignation. The email arrived after 
      Trump praised Musk's efforts on social media but said he should be more 
      aggressive. 
 
   -- House Minority Leader Hakeem Jeffries (D., N.Y.) said Musk has no legal 
      authority to make such demands, a sentiment echoed by Rep. Gerry Connolly 
      (D, Va.) and other lawmakers on Sunday. Sen. John Curtis (R, Utah) told 
      CBS's Face the Nation that Musk needs to use a "dose of compassion." 
 
   -- Musk claimed on X, without evidence, that a significant number of federal 
      workers aren't working and that "non-existent people" or dead people are 
      collecting paychecks. The Federal Bureau of Investigation, Defense 
      Department, and State Department each told their employees not to respond 
      to the requests. 
 
   -- Suzanne Summerlin, a labor lawyer who has represented federal worker 
      unions, told Barron's that there were several issues with Musk's demands, 
      including the part about nonreplies being tantamount to resignation. "You 
      cannot interpret silence to be a resignation," she said. 

What's Next: Everett Kelley, national president of the American Federation of Government Employees, which represents 800,000 U.S. government and Washington, D.C., workers, called the demand cruel and disrespectful and said the union would challenge any unlawful terminations.

-- Janet H. Cho and Liz Moyer

***

German Election Results Can Boost Stocks, the Economy

Germany has voted for change in its federal election. The conservative CDU comfortably finished with the most seats, and investors are optimistic the new government will bring much-needed changes that could bolster the country's economy and its stock market, which is booming.

   -- The biggest relief is that the center-left SPD won enough seats in the 
      Bundestag to be able to form a two-party governing coalition, which 
      should be less unwieldy than an alliance that requires three or more 
      blocs to agree on a program and would have diluted any agenda. 
 
   -- "The hope that the Conservatives' win might help pull Germany out of 
      economic stupor and help bolster collective defense, has lifted investor 
      spirits," said Susannah Streeter, head of money and markets at Hargreaves 
      Lansdown. "A dose of more certainty has been injected into European 
      politics." 
 
   -- Negotiations to form a government will still take weeks, if not months. 
      But Friedrich Merz, the next chancellor, has already stated he wants to 
      make Germany's tax system and regulation more friendly to business. 

What's Next: Merz will have a lot on his plate. Beyond reviving the economy, he will have to deal with the fallout of Russia's war with Ukraine and President Donald Trump's plans to raise taxes on imports from Germany. On Sunday, Merz said it was time to make Europe more independent from the U.S.

-- Brian Swint

***

Tesla and Uber Technologies Prepare for Showdown in Austin

The battle over self-driving cars and the future of ride-hailing is slated to start in Austin, Texas, in just a few weeks. Elon Musk's Tesla is readying a self-driving taxi platform and aiming to start it this year, taking on human drivers at Uber Technologies and Alphabet's driverless Waymo fleet.

   -- Tesla's first foray into the ride-hailing market could come as soon as 
      June in Austin, according to Musk. It will likely be using vehicles owned 
      by regular Tesla drivers who opt into a robotaxi fleet plus some cars the 
      company chooses to operate. 
 
   -- Already, Waymo, which operates in Phoenix, Los Angeles, and San Francisco, 
      is about to start service in Austin and will offer Waymo rides on the 
      Uber App. It makes sense for Waymo and Uber to work together because Uber 
      has a lot of aggregated demand on its network. 
 
   -- Robotaxis could become a trillion dollar market opportunity. Americans 
      drive three trillion miles a year. It costs roughly $1 to $2 a mile to 
      own and operate a car. Robotaxis beating that price could alter the 
      interaction with personal transportation as much as the move from horses 
      to cars. 
 
   -- Uber CEO Dara Khosrowshahi says he doesn't see it as a winner take all 
      market. While Tesla is an existential threat to Uber, self-driving cars 
      could help Uber lower its costs, and it can adopt self-driving tech made 
      by others. It may eventually be able to buy Tesla Cybercabs. 

What's Next: Tesla is going it alone in Austin for now, so Uber will be competing with it when the self-driving operation begins. Tesla hasn't yet completed a paid fully autonomous taxi ride, but wants to launch its Cybercab broadly next year. Waymo completes more than 150,000 driverless trips a week.

-- Al Root

***

Economic Data This Week Feature Fed's Preferred Inflation Gauge

Later this week, investors will see the latest inflation report in the form of the Federal Reserve's preferred measure of inflation, the personal consumption expenditure index. Markets ended last week spooked by concerns about a slowing economy and a consumer whose mood seems to be shifting negatively.

   -- Already, the consumer price index for January rose more than expected, 
      and Fed officials have signaled they aren't in a hurry to cut interest 
      rates while they address still-elevated inflation even though it is 
      heading back toward its 2% annual goal. 
 
   -- This week also includes the release of the Conference Board's consumer 
      confidence measure for February and a second estimate of gross domestic 
      product for the fourth quarter. And the weekly jobless claims data on 
      Thursday could start to show signs of fallout from continuing cuts to 
      federal government payrolls. 
 
   -- GDP is expected to have grown at a seasonally adjusted annual rate of 
      2.3%, which would be unchanged from an earlier estimate in late January. 
      In addition, economists expect the durable goods report this week to show 
      a 2.2% increase for the month in manufactured goods. 

What's Next: Friday's PCE report is expected to show a 2.5% increase from a year ago, one-tenth of a percentage point less than in December. The core PCE, excluding volatile food and energy prices, is expected to rise 2.6% for the year, which would be the lowest since March of 2021.

-- Matt Bemer and Liz Moyer

***

-- Newsletter edited by Liz Moyer, Patrick O'Donnell, Rupert Steiner

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 24, 2025 06:57 ET (11:57 GMT)

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