Your weekly summary with the most important news for your investments, in this edition:

• Nvidia helping stock indexes.

• Conversations about inflation

• Warren Buffett's letter to Berkshire Hathaway investors.

Last week there were two events that generated sharp stock market movements starting with the minutes of the last Federal Reserve (FED) monetary policy meeting, which generated a fall in the main stock indexes, which were quickly reversed after the artificial intelligence microprocessor company, Nvidia, reported a substantial increase in sales, thus allowing a stock rebound in the technology sector. This allowed the stock indexes to close higher with the Dow accumulating a +3.8% year-to-date gain, the S&P 500 following in its footsteps reaching 5,088 points (all-time high) yielding +6.7% and the Nasdaq achieving a +6.6% return. The 10-year sovereign rate jumped above 4.33% to close the week at 4.25% following the Fed's concerns about inflation, which we will discuss in more detail below. The week closed with Warren Buffett's annual letter to Berkshire Hathaway investors explaining, between the lines, why the company has accumulated US$167 billion in liquidity - an amount that provides almost US$9 billion in short-term interest annually with rates above 5%.

This week, as February comes to an end, the focus will be on PCE inflation data, the Fed's preferred reading, the results of retail and consumer companies including Anheuser Busch, Bath & Body Works, Best Buy, Beyond Meat, Macy's and TJX, along with others from the buoyant technology sector such as Dell, Salesforce and Snow to close the week with the ISM and PMI economic activity readings, which will give us a snapshot of the evolution of domestic and global demand as we close out the second month of the year. For now, PCE inflation for the previous month is expected to close at 2.4% (up from 2.6%) and core inflation, which excludes food and energy prices, will close unchanged at 2.9%, figures that will be released on Thursday, February 29th.

Below we will present excerpts from the three events that generated the stock market turmoil starting with the Fed minutes where representatives made the following comments: 

"In discussing risk management considerations that could influence the monetary policy outlook, participants commented that while risks to achieving the Committee's employment and inflation objectives were becoming better balanced, they remained very mindful of inflation risks."

Adding that: 

"Most participants noted that there are risks of acting too quickly to ease the stance of monetary policy and emphasized the importance of carefully assessing the incoming data in judging whether inflation is declining sustainably toward 2 percent. Participants discussed the uncertainty surrounding the economic outlook. As an upside risk to both inflation and economic activity, participants noted that the momentum in domestic demand could be stronger than currently assessed, especially in light of the surprisingly resilient consumer spending last year. In addition, several participants mentioned the risk that financial conditions were or could become less restrictive than appropriate, which could add undue momentum to aggregate demand and cause inflation progress to stall. Participants also pointed to some other sources of upside risks to inflation, including potential disruptions in supply chains due to geopolitical developments, a possible rebound in commodity prices as the effects of supply-side improvements dissipate, or the possibility of wage growth remaining elevated."

This confirms that inflation remains an issue for the FED if it for some reason shows a reversal to the upside, as the producer reading did last month.

On the corporate front Nvidia CEO Jensen Huang, whose sales expanded +265% and profits did so by +800% relative to Q4 2022, noted that: 

"Fundamentally, conditions are excellent for continued growth." arguing that, "Strong demand was driven by enterprise software and consumer internet applications, as well as multiple industry sectors, including automotive, financial services and healthcare."

Thus confirming that the spread of artificial intelligence services is taking root. However, not all companies in the segment will be able to justify some of the valuations they have achieved in recent months and there may be some elements of speculation in the evolution of their prices.

It is in this environment that the legendary Warren Buffett, in his annual letter, aside from eulogizing his late partner Charlie Munger, noted the following in several excerpts from his letter: 

"There are only a handful of companies left in this country capable of really moving the needle at Berkshire, and they have been exhaustively analyzed by us and others. Some we can value; some we cannot. And, if we can, they must be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire."

In short, we have no chance of an astounding return. [...] Berkshire's ability to respond immediately to market convulsions with huge sums and certainty of return may occasionally offer us a large-scale opportunity. Although the stock market is massively larger than in our early years, today's active participants are neither more emotionally stable nor better taught than when I was in school. For whatever reasons, the markets now exhibit much more casino-like behavior than they did when I was young. The casino now resides in many homes and tempts occupants daily. [...]

One rule of investing at Berkshire has not and will not change: Never risk a permanent loss of capital. Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been - and will be - rewarding if you make a couple of good decisions over a lifetime and avoid serious mistakes. By this he implies that the company's excessive liquidity for now has no alternative cost until the stock markets take a massive breather, an event that Warren Buffett believes will come at some point in the future.

In conclusion, for now the focus will continue to be on the evolution of inflation as the technology sector continues to rise on the back of "artificial intelligence" which continues to positively impact investor demand.

THIS WEEK 

Monday (February 26)

Quarterly Reports

• Fidelity National Information Services, Inc.

• Li Auto Inc.

• Public Service Enterprise Group Incorporated

• Heico Corporation

• Zoom Video Communications, Inc.

Economic Reports

• Home Sales Report

• Dallas Fed Manufacturing Index Report

Tuesday (February 27)

Quarterly Reports

• Lowe's Companies, Inc

• American Tower Corporation

• Bank Of Montreal

• AutoZone, Inc.

• Sempra

Economic Reports

• Perishable Goods Orders Report

• Monthly Home Price Change Report, S&P/Case-Shiller

• S&P/Case-Shiller Annual Home Price Change Report

• Speech by Fed Board Oversight Vice Chairman Michael Barr

• FED Richmond Service Sector Index Report

• Service Sector Index Report, FED Dallas

Wednesday (February 28)

Quarterly Reports

• Salesforce, Inc.

• Royal Bank Of Canada

• TJX Companies, Inc.

• Monster Beverage Corporation

• HP Inc.

Economic Reports

• Estimated quarterly change in the Price Index

• Estimated change in Gross Domestic Product Growth Rate

• Trade Balance Report

Thursday (February 29)

Quarterly Reports

• Anheuser-Busch Inbev SA

• Autodesk, Inc.

• Toronto Dominion Bank

• Dell Technologies Inc

• Canadian Natural Resources Limited

• NetEase, Inc.

Economic Reports

• Monthly Price Index Change Report

• Personal Income monthly change report

• Personal Spending Monthly Change Report

• Speech by Atlanta Fed President Raphael Bostic

• Speech by Cleveland Fed President Loretta Mester

• Speech by New York Fed President John Williams

Friday (March 01)

Quarterly Reports

• Pearson, Plc

• RadNet, Inc

• Atlantica Sustainable Infrastructure plc

• Plug Power, Inc

• Keros Therapeutics, Inc.

Economic Reports

• Manufacturing Purchasing Managers' Index Report, ISM

• Manufacturing Purchasing Managers' Index Report, S&P Global

• Speech by Fed Governor Christopher Waller

• Speech by Atlanta Fed President Raphael Bostic

Now you have more information about your investments. See you next week with more news.

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