Market watchers usually pay attention to where the big money is going, as these carry a lot of weight when it comes to determining and sustaining trends. Apart from looking at the top financial institutions’ positions, it’s also interesting to note what the trading legends like Warren Buffet and George Soros are looking at.
So far, Warren Buffet hasn’t given any official word on which shares he plans to trade for 2016 but if Berkshire Hathaway holdings are any indication, it seems that the market guru has his sights set on reducing his positions on consumer sector equities and moving funds to the financials.
Over the past few years, Berkshire’s holdings of Johnson & Johnson have been reduced by 96.8% from 10.33 million shares in 2012 to just 327,100 shares in 2014. Berkshire also trimmed its holdings of Kraft Foods Group from 58.8 million shares in 2012 to 1.92 million shares in 2014. Buffet has also dumped 11.5% of its shares on Procter & Gamble, although this stock is still one of the company’s top holdings.
More recently, the firm has redirected these funds to Wells Fargo & Company, American Express Company, US Bancorp, and The Bank of New York Mellon Corporation. Perhaps Buffet is pricing in a potential rally in the banking sector now that the U.S. central bank is gearing up to raise borrowing costs and embark on a tightening cycle over the next few years.
Interestingly enough, another top trader – George Soros is showing weaker confidence in the US market, with higher interest rates likely to weigh on consumer spending and business activity down the line. Soros Fund Management has been selling off shares of General Motors and Microsoft Corp. while John Paulson’s fund has been trimming holdings of Family Dollar Stores and JPMorgan Chase.
Another factor that could lead to a pause in the bull-run is the upcoming US elections, as any change in leadership could bring a bit of uncertainty in the markets. Keep in mind that stock indices have been on a tear for the past six years, which means that a correction might take place soon.
For the more optimistic investors such as Adam Parker of Morgan Stanley, the S&P 500 index might still churn out a gain for the year, possibly yielding a rise of 4% to 2,175. He also cites the recent downturn in commodity and energy prices as one of the main factors that might weigh on company earnings.
David Kostlin of Goldman Sachs predicts that 2016 will fare just as well as last year, with stock indices mostly consolidating around their current levels and posting minimal gains of just around 1%. BMO Capital Market’s Brian Belski is also bracing for a potential market correction, with investors likely to exercise more caution on higher interest rates, weaker commodity prices, and the slowdown in emerging markets. For UBS analysts, jobs growth and upside wage pressure could continue to support consumer spending and inflation, allowing them to give a more upbeat forecast for US markets.