Day: September 3, 2024

Investors seeking better-than-average returns typically have to take on greater-than-average risk. A company that can outpace the S&P 500 with less downside in the case of a market downturn is a rare find.

In his 2023 letter to Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) shareholders, Warren Buffett identified one company that has better prospects than the average American corporation. He also said it operates with less risk of losing capital, which should provide significant downside protection.

Buffett’s track record of outperforming the S&P 500 since founding his first investment partnership in 1956 is quite astounding. The average compound annual return of Berkshire Hathaway stock since Buffett took control of the business in 1965 are nearly double the index. So, when Buffett says he believes a stock can do better than average, investors listen.

The one stock Buffett thinks should do better than average

Berkshire Hathaway’s investment portfolio is valued around $318 billion.

In his most letter to shareholders, Buffett identified several stocks in the portfolio that he plans to hold indefinitely. He first calls out Berkshire’s investments in American Express (NYSE: AXP) and Coca-Cola (NYSE: KO), two investments he hasn’t added to since the mid-90s. Still, the two have grown so much in that time that they represent two of the four largest equity positions in Berkshire’s portfolio.

American Express has benefited from the shift to digital payments like credit cards. As the issuer and network operator for its credit cards, Amex guarantees control over the economics of the payment ecosystem. That’s a strong position to be in, ensuring it controls its own destiny. Recent efforts to expand its payments network internationally, increase lending, and attract younger consumers, have paid off in strong operating results.

Coca-Cola is one of the best known brands in the world. The strength of its brand and its global scale give it a considerable competitive advantage, or moat, as Buffett likes to call it. Coke’s brand strength allowed it to raise prices and protect margins amid the staggering inflation of the last few years (both domestically and abroad).

While Buffett considers both Coke and Amex wonderful businesses, they don’t earn the spot as Buffett’s top pick to outperform the average American corporation.

Over the last few years Buffett’s been accumulating a massive stake in Occidental Petroleum (NYSE: OXY). In his letter to shareholders he said he likes Occidental’s domestic oil and gas holdings as well as its carbon-capture initiatives. He praised CEO Vicki Hollub, who has taken steps to aggressively increase Occidental’s portfolio of properties.

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Buffett has consistently added to Berkshire’s position in Occidental whenever its price drops below $60 per share. The stock has grown to account for 4.5% of Berkshire’s equity portfolio, even more if you include the preferred shares Buffett acquired in 2019. Weakening oil prices have led it to trade below that level recently, though, and Buffett hasn’t added any shares since June.

But Occidental isn’t Buffett’s top pick for a single stock that should outperform the market average with less downside either.

The stock Buffett notes should perform better than average is Berkshire Hathaway itself. The combination of its equity positions and wholly owned companies gives it much more potential than any single business on its own. “With our present mix of businesses, Berkshire should do a bit better than the average American corporation and, more important, should also operate with materially less risk of permanent loss of capital,” Buffett wrote to shareholders.

Buffett’s betting big

Buffett isn’t just saying Berkshire should perform better than average, he’s backing it up with cold hard cash. Practically 99% of his wealth is tied to Berkshire Hathaway’s performance. In his letter to shareholders he notes his family is also heavily invested in Berkshire, including his sister Bertie and her three daughters.

Not only has he put his own wealth into the future of Berkshire Hathaway, he’s also consistently redeployed Berkshire’s own cash to buy back shares of the stock. Since the board of directors updated the company’s share repurchase authorization in 2018 to allow Buffett to buy back shares whenever he felt they were undervalued, he’s rarely missed an opportunity to do so.

That said, Buffett did slow repurchase activity considerably in the second quarter, eschewing purchases altogether in June. That’s not necessarily a sign that Buffett feels the shares are overvalued at this point. Buffett may want to keep a giant pile of cash for a potential acquisition or to provide more flexibility for his eventual successor. (He just turned 94.) As of the end of the second quarter, Berkshire had $277 billion in cash and equivalents.

That cash offers considerable downside protection for investors. If the stock market tumbles, Buffett is well positioned to take advantage of the opportunity to buy stocks or entire companies trading below their intrinsic value.

It’s hard to consider Berkshire shares overvalued, even if it does trade for a relatively high price-to-book value (one of Buffett’s preferred valuation measures). But Buffett has deleveraged Berkshire recently, holding enough cash to cover its insurance business reserves. Meanwhile, Berkshire’s operating earnings from its wholly owned businesses totaled $42.1 billion over the past four quarters. That’s remarkable growth from the $27.6 billion the company produced in 2021.

At its current valuation, Berkshire Hathaway trades for just 23.75 times its trailing operating income. That doesn’t include investment gains, which have been substantial. If you strip out the $318 billion equity portfolio, the company is priced at 16.3 times operating earnings. And that includes a massive cash position that Buffett could invest when he finds a suitable opportunity. At that price, it’s no wonder he feels Berkshire has a great chance to outperform over the long run.

Should you invest $1,000 in Berkshire Hathaway right now?

Before you buy stock in Berkshire Hathaway, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $731,449!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of August 26, 2024

American Express is an advertising partner of The Ascent, a Motley Fool company. Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

1 Stock That’s a Safe Bet to Outperform the Market Long Term, According to Warren Buffett was originally published by The Motley Fool

According to a recent report, homeowners across the United States are sitting on a goldmine — $17 trillion worth of home equity. This represents the portion of a home’s value that a homeowner truly owns, after accounting for mortgage debt. With property values soaring, many Americans have seen their home equity grow significantly, often without even realizing it.

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The Big Idea: Investing Home Equity for Bigger Returns

Grant Cardone, a well-known real estate investor, recently sparked a conversation on Twitter by suggesting that instead of letting all that home equity just sit there, homeowners could invest it to earn much higher returns — anywhere from 6% to 12%.

According to him, this approach could unlock trillions of dollars in passive income, especially for aging homeowners who could use that extra cash to enhance their lifestyles.

Trending:

Ways To Use Home Equity

1. HELOC (Home Equity Line of Credit)

HELOCs work more like a credit card. You can borrow money as needed during a certain period and then repay it later. You can typically borrow up to 85% of your home’s equity.

2. Home Equity Loan

This is like taking out a second mortgage. You get a lump sum of money upfront, and you pay it back over time with a fixed interest rate. You usually need to keep at least 20% equity in your home.

3. Cash-Out Refinance

Here, you take out a new, larger mortgage and get the difference in cash after paying off your old mortgage and covering fees.

Why Not Everyone Agrees

Not everyone is on board with this idea, though. Many people responded to Cardone’s tweet with concerns about the risks involved.

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For many homeowners, the equity in their home represents a financial safety net as it’s a secure asset that doesn’t fluctuate with the stock market. Most people prefer to keep their home equity intact instead of risking it in investments that might or might not work out. As one X user said, “They prefer safety over returns. I talk to them every day.”

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Others pointed out that using home equity to invest could backfire. If the investments don’t perform well, homeowners might struggle to repay loans or lines of credit taken out against their home equity, and this could lead to foreclosure, leaving them without a home.

Some even joked about the idea of everyone cashing out their home equity, asking, “Where would everyone live? On the street or in a cave?” Homes aren’t just financial assets. They’re where people live and raise their families. Risking that security for the chance at higher returns is a gamble not everyone is willing to take.

And one of Cardone’s followers tried to explain what Grant even meant with his original tweet. He said, “For those confused, Grant believes people should rent where they live but own properties (commercial and residential) that pay rent.” It’s something that Cardone supposedly does.

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Financial expert Dave Ramsey also has a different take on Grant Cardone’s idea because he’s known for his conservative approach to money management, particularly when it comes to debt. He often advises against borrowing against home equity, stressing the importance of financial security and living debt-free. To him, using home equity to invest in the market is too risky, especially for those nearing retirement.

While the chance to earn more money is appealing, the risks are big and need to be thought through carefully. For many homeowners, it might be smarter to keep their home equity safe so they have a secure place to live no matter how the market changes.

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This article Homeowners Have $17 Trillion In Home Equity. Grant Cardone Says, ‘Imagine If That Money Was Invested Earning 6% – 8 – 10 Or 12%’ originally appeared on Benzinga.com

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

The robotaxi wars are heating up. After an initial delay, Tesla (NASDAQ: TSLA) has a planned robotaxi event in October, while General Motors‘ (NYSE: GM) Cruise recently struck a deal with Uber to offer autonomous vehicles on the ride-sharing company’s platform next year.

However, there is currently one company ahead of the pack and that is Waymo, owned by Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). Let’s take a look at why I think Alphabet will be the robotaxi leader moving forward.

First-mover advantage

At this point, Waymo is way ahead of the pack, with customers actually using its robotaxi services. The company recently announced that it is providing 100,000 paid robotaxi trips a week, which is about 100,000 more than Tesla and Cruise combined are currently offering.

This is double the number of trips Waymo was providing in May. Currently, the company is operating in four U.S. cities: San Francisco, Phoenix, Austin, and Los Angeles. It plans to expand into other cities within the corresponding states. At present, only California, Texas, and Arizona permit autonomous-taxi services.

Waymo also recently unveiled its sixth-generation, self-driving technology, which will look to reduce the costs of the vehicles. The new technology will lower the number of cameras around the vehicles from 29 to 13 and the number of lidar sensors from five to four. Waymo is currently testing the new-generation technology on public roads with professional drivers on board. In addition to cost savings, the new technology has also been designed to handle more weather conditions.

With Waymo the only robotaxi service currently operating in the U.S., the company has a nice first-mover advantage. Customers are already using its fleet without major incident, which will only build confidence in its offering as it expands. Meanwhile, driving down costs with its vehicles is also important, as this will make the economics for the service better.

Earlier this year, Alphabet announced that it would invest another $5 billion into Waymo to help the company continue to ramp up its business.

Tesla has history of overpromising and underdelivering

While Tesla has a big robotaxi event planned for October, thus far, the company has not delivered any paid rides to customers. And yet, for years Tesla has been telling everyone it would turn customer vehicles into fully autonomous cars with a software update.

In 2016, the company famously wrote a blog post that all its cars were now produced with self-driving hardware. However, seven years have passed, and none of Tesla’s driving systems are fully autonomous; they all need to be supervised with a driver. Meanwhile, the older hardware has needed upgrading to run its latest “Full Self-Driving” (FSD) service at the cost of the customer, which has led to lawsuits.

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And in December 2023, Tesla had to recall more than 2 million vehicles to install new Autopilot safeguards. However, the National Highway Traffic Safety Administration (NHTSA) had to investigate the recall after 20 reported crashes followed the installation of the updated software. Over the last few years, there have been about 1,000 auto accidents reported involving Tesla’s Auto Pilot system.

Critics of Tesla’s robotaxi efforts abound. In July, Rolling Stone questioned if Tesla even has the technology to build a robotaxi, citing a number of critics of the company. The publication followed that up in August with a test drive using the company’s self-driving technology. The author of the Rolling Stone article said they did not feel safe and that the technology almost caused an accident.

Rolling Stone, though, isn’t the only news source to question Tesla’s autonomous-driving technology; InsideEVs reported that in a test drive, bad weather compromised the vehicle’s FSD system. It noted that the car dangerously stopped in the middle of a highway to let a car pass, and also tried to turn off the road and into a furniture store. It said that a lack of supplemental radar and lidar could be to blame.

While Tesla bulls, like Ark Investment, will parrot that Tesla is training its autonomous vehicles with more data and thus will give it an advantage, so far its real-world applications appear to be falling short.

Cruise has had past issues

GM’s Cruise unit, meanwhile, has had its own issues. One of its robotaxis was involved in an incident in which the vehicle dragged a pedestrian after the person was hit by another vehicle. California subsequently suspended its license last October, and Cruise then decided to pause all operations.

The incident led to a number of key leaders at the unit being dismissed. Meanwhile, Cruise has been bleeding money since GM acquired it in 2016.

While the deal with Uber is a good step, this safety issue does leave a bit of a cloud over the company. It is currently authorized to operate in three cities: Dallas, Houston, and Phoenix.

Time to buy Alphabet stock

With Alphabet trading at a forward price-to-earnings (P/E) ratio of 19 next year’s analyst estimates, the stock looks cheap.

GOOGL PE Ratio (Forward 1y) data by YCharts.

At this point, given Alphabet’s valuation, investors are basically getting a free call option on Waymo. If it becomes a big success, investors will win, but if it fails, it really won’t hurt them. That is a big difference compared to Tesla, where a lot of the bullish thesis around the stock centers around its future robotaxi business as electric vehicle (EV) growth slows.

Should you invest $1,000 in Alphabet right now?

Before you buy stock in Alphabet, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $731,449!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of August 26, 2024

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Tesla, and Uber Technologies. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.

Prediction: Alphabet Will Be the Robotaxi Leader, Not Tesla was originally published by The Motley Fool

(Reuters) — Intel (INTC) CEO Pat Gelsinger and key executives are expected to present a plan later this month to the company’s board of directors to slice off unnecessary businesses and revamp capital spending, according to a source familiar with the matter, as they try to revive the once-dominant chipmaker’s fortunes.

The plan will include ideas on how to shave overall costs by selling businesses, including its programmable chip unit Altera, that Intel can no longer afford to fund from the company’s once-sizeable profit.

Gelsinger and other high-ranking executives at Intel are expected to present the plan at a mid-September board meeting, the same source said.

Details of Gelsinger’s proposal is reported here for the first time.

Intel declined to comment.

The proposal does not yet include plans to split Intel and sell off its contract manufacturing operation, or foundry, to a buyer such as Taiwan Semiconductor Manufacturing Co. (TSM, 2330.TW), according to the source and another person familiar with the matter.

The presentation, including the plans around its manufacturing operations, are not yet finalized and could change ahead of the meeting.

Intel has already broken off its foundry business from its design business, and has been reporting its financial results separately since the first calendar quarter of this year.

The company has erected a wall between the design and manufacturing businesses to assure that potential customers of the design division would have no access to technology secrets of customers using Intel’s factories, known as fabs, to manufacture their chips.

Intel is suffering through one of its worst periods as it attempts to play catchup in the AI era against the likes of Nvidia (NVDA), the dominant AI chipmaker with a $3 trillion market capitalization. In contrast, Intel’s has now sunk to below $100 billion after a disastrous second-quarter earnings report in August.

The proposal Gelsinger and others will present is likely to include plans to further reduce the company’s capital spending on factory expansion. The pitch may include plans to pause or altogether halt its $32 billion factory in Germany, a project that has reportedly been delayed, the source said.

In August, Intel said it expects to cut capital spending to $21.5 billion in 2025, down 17% from this year, and issued a weaker-than-expected third-quarter forecast.

In addition to the CEO and executive plans, Intel has retained Morgan Stanley and Goldman Sachs to advise the board on what businesses Intel can sell and what it needs to retain, according to two sources with knowledge of the company’s advisory plans.

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Intel has not yet asked for bids on the product units, but will likely do so once the board endorses a plan, according to the two sources familiar with the company’s advisory plans.

Altera spin-out

The mid-September board meeting is pivotal for the one-time chipmaking king. Intel reported a disastrous second quarter in August, which included pausing the company’s dividend payments and a 15% staff cut, aimed at saving $10 billion.

Weeks later, chip industry veteran Lip-Bu Tan resigned from the board after months of debate over the company’s future, Reuters reported, creating a vacuum of deep semiconductor business experience on the board.

Last Thursday, after the Reuters report, Gelsinger sought to reassure investors about the company’s weak financial performance.

“It’s been a difficult few weeks,” Gelsinger said at a Deutsche Bank conference. “And we’ve been working hard to address the issues.”

Gelsinger said the company is “taking seriously” what investors have said and that Intel is focused on phase two of the company’s turnaround plan.

Part of those plans will remain unresolved until the mid-September meeting. Then, the company’s directors will likely make crucial decisions about which businesses Intel will keep and which it will shed.

One potential unit the company may look to unload is its programmable chip business, Altera, which Intel acquired for $16.7 billion in 2015. Intel has already taken steps to spin it out as a separate but still wholly owned subsidiary and has said it planned to sell a portion of its stake in an initial public offering in the future, though it has not set a date.

But Altera could also be sold entirely to another chipmaker interested in growing its portfolio, and the company has quietly begun exploring whether a sale would be possible, according to one source familiar with its advisory plans and one of the sources familiar with the plans to cut businesses.

Infrastructure chipmaker Marvell is one potential buyer for such a transaction, according to one of the sources.

Bloomberg earlier reported various options for Intel including a potential split of Intel’s product design and manufacturing businesses that is expected to be discussed at the board meeting.

(Reporting by Max A. Cherney in San Francisco and Milana Vinn in New York; Editing by Kenneth Li, Anirban Sen, Paritosh Bansal, Deepa Babington and Mark Porter)

By Joanna Plucinska and Tim Hepher

(Reuters) -Hong Kong’s Cathay Pacific Airways said on Monday it had started inspecting all its Airbus A350 jets after the in-flight failure of an engine component, sending shares in British engine supplier Rolls-Royce down sharply.

The carrier said it had cancelled 24 return flights operating until the end of Tuesday, and that a number of aircraft would be out of service for several days while the process, which it described as precautionary, was completed.

An Airbus spokesperson referred questions to the airline and to Rolls-Royce, which said it was aware of the incident and was committed to working closely with Cathay, Airbus and authorities conducting an investigation.

Shares in the company – the sole engine provider for the Airbus A350 family of long-haul jets – closed down more than 6% and dragged Europe’s defence and aerospace index down 2.8%

According to Flightradar24 data, the problem apparently unfolded several minutes after take-off as flight CX383 initially headed out over the sea, south of Hong Kong.

Instead of immediately turning north for the roughly 12-hour journey to Zurich, the aircraft performed two wide circles before returning to Hong Kong where it landed safely about 75 minutes after take-off, according to the tracking data.

Cathay did not describe the failed engine component in detail but said it was the first of its type to suffer such failure on any A350 aircraft worldwide.

“Thus far we have identified a number of the same engine components that need to be replaced. Spare parts have been secured and repair work is underway,” it said.

A person familiar with the matter said the incident involved a problem with a fuel nozzle, a component that directs fuel inside the engine.

Experts say such problems are rare but, barring a deeper flaw, generally raise fewer alarms than the failure of one of the major rotating parts such as a turbine blade. However, any widespread further inspections could be disruptive to airlines.

HONG KONG PROBE

Industry sources said Hong Kong’s Air Accident Investigation Authority had quickly launched an investigation. The bureau could not be reached for comment outside office hours.

Britain’s Air Accidents Investigation Branch said it would support any investigation carried out in Hong Kong.

According to Flightradar24 data, the diverted aircraft is an A350-1000, the larger of two models of twin-engined A350. These are powered by the XWB-97, Rolls’ largest civil jet engine.

Cathay operates 18 of the largest twin-engined Airbus planes as part of a mixed fleet of Airbus and Boeing jets.

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It is one of the largest users of the A350-1000 alongside British Airways, which also has 18 in operation, but behind the largest operator, Qatar Airways, according to Airbus data.

There were no immediate reports of similar findings at other airlines. Other operators of the A350-1000 did not immediately respond to requests for comment.

The European Union Aviation Safety Agency (EASA), which is responsible for overseeing Airbus jets and has the power to order fleet-wide checks or repairs, did not rule out taking action but said it would wait for the results of the probe.

“We will be monitoring any information coming out of the technical investigation and will take decisions on any fleet level action as required,” a spokesperson said.

In total, Cathay operates 48 A350 jets including the smaller and more widely used A350-900, which runs on a different member of the Rolls-Royce Trent XWB engine family called the XWB-84.

The airline said it was coordinating with the Hong Kong Civil Aviation Department and the jet and engine manufacturers.

Cathay has around 100 planes currently on order including freighters, narrow-bodies and wide-bodies, with rights to acquire another 80.

(Additional reporting by Himanshi Akhand in Bengaluru; Editing by Alex Richardson, Christina Fincher and Tomasz Janowski)

Dow Jones futures fell Tuesday morning, along with S&P 500 futures and Nasdaq futures after the Labor Day weekend.

The stock market rally showed mixed action last week. The Dow Jones hit a record high while the S&P 500 edged higher and Russell 2000 edged lower. The Nasdaq composite lagged, as Nvidia (NVDA) earnings failed to impress. But the tech-heavy composite did recover its 50-day line in a solid Friday bounce.

The S&P 500, just below a record high, has entered a power trend, a positive sign for the market rally. A number of stocks broke out or set up in the past week.

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S&P 500 Enters Power Trend; Broadcom, Comfort Systems, NextEra Energy In Focus

ServiceNow (NOW), Netflix (NFLX), AppLovin (APP), Comfort Systems (FIX), NextEra Energy (NEE) and Spotify (SPOT) are all in buy areas.

So is China EV giant BYD (BYDDF). The Tesla (TSLA) archrival broke out Friday, with BYD reporting a big jump in sales on Sunday. Several other China EV makers reported August deliveries as well.

Broadcom (AVGO), Samsara (IOT) and Dick’s Sporting Goods (DKS) are around buy points with earnings due this coming week.

On Friday, investors will get the August jobs report.

Nvidia and ServiceNow stock are on IBD Leaderboard. Comfort Systems is on IBD SwingTrader. Nvidia stock, Netflix, Samsara and Comfort Systems are on the IBD 50.

The video embedded in this article discussed the market action on Friday and for the week. It also analyzes Broadcom stock, Comfort Systems and NextEra Energy.

Dow Jones Futures Today

Dow Jones futures fell 0.5% vs. fair value. S&P 500 futures retreated 0.5% and Nasdaq 100 futures declined 0.6%.

Crude oil futures fell more than 1%.

U.S. stock markets were closed Monday for Labor Day, though other exchanges around the world were open.

The official China manufacturing index dipped 0.3 point in August to 49.1, further below the break-even 50 level and under views for an unchanged 49.4. However, the Caixin manufacturing index edged up 0.6 point to 50.4 vs. views for 50.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

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Stock Market Rally

The stock market rally had mixed action during the week, but had a strong finish Friday.

The Dow Jones Industrial Average rose 0.9% in last week’s stock market trading. The S&P 500 index climbed 0.2%. The Nasdaq composite fell 0.9%, but gained 1.1% on Friday. The small-cap Russell 2000 lost a fraction.

The S&P 500 closed Friday a fraction below the top of its recent range and less than 0.4% below all-time highs. On Friday, the benchmark index entered a power trend. It’s a positive sign, but not a buy signal itself. Mike Webster, IBD’s chief market strategist, said on IBD Live Friday:

“It’s very important to know that (the start of a power trend) … is not a buy signal. It is just a different phase. So what it does is you treat additional buy signals differently. Doesn’t mean you take extra action today but if we get more buy signals next week or the week after while the power trend is still going, if you were going to go on margin, if there’s stuff to buy, if you’re making progress and the power trend is still on, that would be the time to do it.”

The Nasdaq has some work to do before getting to its own power trend. Right now, it needs to decisively reclaim the 50-day line, then clear its recent range and the 18,000 level. On the flip side, there’s the risk that the Nasdaq could break below its 21-day line.

Nasdaq futures suggest the composite will fall back below the 50-day line and perhaps test the 21-day line at Tuesday’s open.

More broadly, the recent action in the Nasdaq, Nvidia and megacaps suggests that the tech sector may lag the non-tech sector for a while.

The 10-year Treasury yield rose 10 basis points to 3.91%, but it’s down 77 basis points over the last four months.

U.S. crude oil futures fell 1.7% to $73.55 a barrel last week.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.85% last week. The iShares Expanded Tech-Software Sector ETF (IGV) advanced 0.5%. ServiceNow stock is a big IGV position, with Samsara also in the ETF. The VanEck Vectors Semiconductor ETF (SMH) slumped 2%. Nvidia stock is the dominant SMH holding, with Broadcom also a key member.

SPDR S&P Metals & Mining ETF (XME) edged up about 0.1% last week. The Global X U.S. Infrastructure Development ETF (PAVE) climbed 0.5%. The SPDR S&P Homebuilders ETF (XHB) declined 1.5%. The Energy Select SPDR ETF (XLE) rose 1% and the Health Care Select Sector SPDR Fund (XLV) gained 1.1%.

The Industrial Select Sector SPDR Fund (XLI) rallied 1.7% while the Financial Select SPDR ETF (XLF) leapt 2.95%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slumped 3.1% last week and ARK Genomics ETF (ARKG) declined 2.15%. Tesla stock is still a major holding across Ark Invest’s ETFs. Cathie Wood also has built up a significant position in Nvidia and owns a small stake in BYD stock.

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Nvidia Stock

NVDA stock sold off 7.7% last week to 119.37. Shares rose 1.5% on Friday but still closed just below its 50-day line.

Nvidia fell modestly Tuesday morning.

Nvidia reported a 152% EPS gain late Wednesday and guided up for Q3 revenue. But the beat-and-raise wasn’t as large as in prior quarters.

After Friday’s close, Nvidia stock has a handle, giving it a lower official buy point of 131.26.

Stocks In Buy Zones

ServiceNow rose 3.2% to 855 last week, continuing a rebound from the Aug. 5 low. On Friday, NOW stock broke out past an 850.33 buy point from a new flat base.

AppLovin stock climbed 3% to 92.87. On Friday, APP stock finally closed above a 91.91 buy point from a V-shaped consolidation after several intraday attempts. The relative strength line, which tracks a stock’s performance vs. the S&P 500, is almost at a multiyear high.

Netflix stock climbed 2.1% to 701.35 last week, just above a 697.49 cup-base buy point.

Comfort Systems stock climbed 4.4% to 353.52. The AI-adjacent heating and cooling play on Friday closed above a 347.73 handle buy point as well as an alternate entry at 352.47, the top of the base.

NextEra stock rose 1.1% to 80.51, just reclaiming an 80.47 buy point on Aug. 26.

Spotify stock edged up 0.1% to 342.88, but held support at the 21-day line and remains within range of a 331.08 flat-base buy point, according to MarketSurge. Shares have been trading tightly for weeks. Investors could use 350.32 as a de facto four-weeks-tight entry within an emerging consolidation.

BYD stock broke out of a cup-with-handle base on Friday, jumping 5.2% to 30.50 for the week. Up 10.2% in 2024, BYD is the only EV maker that’s positive this year.

China EV Sales

On Sunday, BYD reported August sales of373,083, a big jump vs. July’s record 342,383, though there had been buzz that it would get closer to 400,000.

Among fellow China EV makers, Li Auto (LI) reported August deliveries fell vs. July’s record. Nio (NIO) deliveries edged down, but held above 20,000 for a fourth straight month. XPeng (XPEV) and Zeekr (ZK) reported big month-to-month gains. All four EV stocks are down sharply in 2024.

Tesla stock popped 3.8% Friday, but fell 2.8% for the week to 214.11, dropping below its 50-day. Shares rose slightly early Tuesday.

On Monday, industry data showed Tesla China sold 86,697 EVs in August, including exports, up 17% vs. July and 3% vs. a year earlier.

Stock Market Analysis

While the market rally is pausing, it’s made a lot of progress from the Aug. 5 low. More stocks are setting up bases that are no longer so V-shaped, with handles also coming into shape.

The S&P 500 entering a power trend reflects this broader picture.

Investors who made a series of buys since the Aug. 13 follow-through day may want to be cautious about significantly adding exposure until the current pause resolves itself.

If the S&P 500 and Nasdaq can clear their recent short-term ranges, that would be highly bullish, almost certainly coinciding with a number of breakouts.

But if the Nasdaq breaks clearly below the 50-day and 21-day lines, many recent buys and setups would falter, especially in tech.

Don’t be too exposed to AI and tech. Finance, utility and some retail and footwear stocks are showing strength, along with a variety of medicals.

Make sure you have your watchlists up to date and review your portfolio.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.

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There’s been an ongoing debate about whether retirees should abandon the “4% rule” for withdrawals from retirement accounts, a retirement income rule of thumb for decades. The market volatility of recent years made that rule suspect for many new retirees, but a new study from Morningstar finds that the rule can still apply.

Do you have questions about building a long-term plan for retirement? Speak with a financial advisor today.

What Is the 4% Rule?

Created in 1994 by a financial planner named William Bengen, the 4% rule posits that retirees can make a well-structured retirement fund last 30 years by withdrawing no more than 4% of the balance in the first year of retirement, then adjusting subsequent withdrawals for inflation. Bengen’s research was based on each 30-year period of market returns and conditions dating back to 1926. He found that even during the worst three decades for markets – a stretch from October 1968 to 1998 – a retiree wouldn’t run out of money.

The popularity of the rule has fluctuated, and the strategy comes with some associated criticism. That’s because during down markets the sequence of returns risk can come into play, which occurs when the first years of withdrawals take place when the value of the retirement portfolio is down. Earlier this year, personal finance expert Suze Orman argued that the rule no longer made sense and that retirees should prolong working and withdraw as little money as possible, but no more than 3%.

How Morningstar’s Study Factors In

The investment analysis firm Morningstar has examined the safe rate of withdrawal for the first year of retirement for a few years running. Morningstar’s newest research finds that with the partial recovery of stocks, withdrawing up to 4% is once again a safe starting point.

“I estimate that retirees drawing down income from an investment portfolio can now afford to withdraw as much as 4.0% as an initial spending rate, assuming a 90% probability of still having funds remaining after a 30-year time horizon,” writes Morningstar portfolio strategist Amy C. Arnott, CFA.

Morningstar’s research on the optimum initial safe withdrawal rate started in 2021 when the analysis recommended a 3.3% withdrawal rate. For 2022, that rate increased to 3.8%. The research assumes a 90% chance of success for a portfolio where stocks make up 20% to 40% of the holdings. At the end of 30 years, the portfolio would still have value.

The big factor in this year’s assessment was a change in the estimate for long-term inflation that fell to 2.42% this year against 2.84% in 2022, along with improvements in returns on fixed-income investments, such as bonds and cash accounts. The projected 30-year fixed-income returns (including cash) increased from 4.44% in 2022 to 4.81% in 2023. The study noted that while the performance of stocks has improved so far this year, the projected 30-year returns on stocks decreased this year, slipping to 9.41% from 9.88% in 2022.

Story continues

The study notes that retirees who take a more flexible approach to withdrawals than a strict rate of 4% adjusted annually for inflation could be able to withdraw more money at the beginning of retirement when retirees often spend more money as they establish a new retirement lifestyle. Those retirees would need to accept that their cash withdrawals would fluctuate from year to year and that they might have less money left after 30 years. Consider speaking with a financial advisor to build a personalized plan based on your goals.

Bottom Line

The popularity of the 4% rule comes and goes but it can be a good starting point for creating a safe strategy for retirement withdrawals. An important consideration is how much money is withdrawn in the first years of retirement, especially if the portfolio has lost value.

Retirement Planning Tips

• A financial advisor can help you build an income plan for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Social Security plays a significant role in most people’s plans for retirement. SmartAsset’s Social Security calculator can help you estimate how much your benefits will be worth based on when you plan to claim them.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

Photo credit: ©iStock.com/Vadym Pastukh, ©iStock.com/Natalia Shabasheva

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