On Friday, the day U.S. President Trump increased tariffs on over $200 billion of Chinese goods from 10% to 25%, Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)’s favorite market indicator stood at 141.7%, down approximately 2.7% from its May 1 level of 144.4%.
Dow tumbles further on tariff hike
During the first hour of trading, the Dow Jones Industrial Average traded over 300 points lower than Thursday’s close of 25,828.36 on Trump’s tariff hike, sending the Dow down close to 700 points from last Friday’s close of 26,504.95.
President Trump said in a tweet that he expects the tariffs to make the U.S. "much stronger" and that China "should not renegotiate deals" at the last minute.
Two major gurus show little trepidation regarding the trade war
CNBC columnist Kate Rooney said on Thursday that Leon Cooperman (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio), two major investors, “are not worried about the ongoing trade war.” Rooney cited several reasons, including reasonable valuations, a “friendly” Federal Reserve and low recession risk.
Cooperman, who turned his Omega Advisors hedge fund into a family office at the end of 2018, said the ingredients for a recession are not present: The Federal Reserve remained “dovish” regarding the increase in interest rates while stock valuations remain “reasonable.”
Gabelli said that while it is time someone “arm-wrestles” the trade issue, the GAMCO Investors Inc. (GBL, Financial) CEO still hopes for a “better and fairer” resolution. Gabelli further said that Trump’s threat to increase tariffs and China’s ensuing retaliation represents “creative tension.”
Stock market remains significantly overvalued yet value screeners still identify good opportunities
The ratio of total market cap to gross domestic product, probably the “best measure” of market valuations according to Warren Buffett, stood at 141.7%, approximately 26.7% higher than the “significant overvaluation” threshold of 115%. Based on this market valuation level, the average market return per year over the next eight years is -1.90%.
According to the predicted and actual returns chart, the expected market return per year over the next years ranges from -9.70% in the most pessimistic case to 2.10% in the most optimistic case.
Despite the overvalued market, GuruFocus’ value screens still show strong investing opportunities as Table 1 illustrates. The value screener counts are as of Thursday.
| Screener | USA | Canada | UK | Europe | Asia | Oceania | Latin America | Africa | India |
| Graham Net-Net | 232 | 58 | 53 | 260 | 659 | 11 | 10 | 14 | 51 |
| Undervalued Predictable | 58 | 6 | 56 | 123 | 73 | 8 | 48 | 7 | 12 |
| Buffett-Munger | 36 | 4 | 32 | 78 | 94 | 2 | 23 | 5 | 52 |
| Peter Lynch PE | 30 | 0 | 20 | 40 | 58 | 0 | 6 | 1 | 8 |
| Peter Lynch PS | 96 | 6 | 35 | 104 | 80 | 6 | 38 | 22 | 42 |
| Peter Lynch PB | 110 | 19 | 60 | 149 | 112 | 6 | 32 | 24 | 61 |
| Lynch p2ebitda | 171 | 8 | 50 | 188 | 119 | 8 | 16 | 17 | 54 |
| Hist Low PS | 34 | 2 | 17 | 53 | 104 | 0 | 16 | 6 | 33 |
| Hist Low PB | 47 | 3 | 29 | 71 | 110 | 2 | 30 | 9 | 29 |
| Magic Formula | 4456 | 541 | 2321 | 6976 | 13274 | 576 | 1104 | 384 | 3459 |
| 52-week Low | 1130 | 127 | 422 | 1468 | 2875 | 108 | 379 | 151 | 1449 |
| 52-week High | 1762 | 235 | 1196 | 2828 | 1413 | 187 | 537 | 108 | 396 |
| 3-year Low | 535 | 79 | 197 | 689 | 1472 | 43 | 150 | 70 | 825 |
| 3-year High | 1316 | 146 | 943 | 2015 | 708 | 129 | 431 | 68 | 232 |
| 5-year Low | 382 | 49 | 134 | 466 | 964 | 26 | 92 | 56 | 491 |
| 5-year High | 1187 | 139 | 905 | 1859 | 561 | 121 | 407 | 53 | 213 |
| High Div Yield | 57 | 5 | 10 | 129 | 42 | 16 | 25 | 6 | 6 |
Table 1
Disclosure: no positions.
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