Warren Buffett Issues Stark Stock Market Warning Ahead of 2025

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In a significant move, Warren Buffett of Berkshire Hathaway has sent a warning to Wall Street regarding a potential downturn in the stock market. During the first three quarters of 2024, Berkshire sold $133 billion worth of stocks while only purchasing $6 billion, resulting in a net selling of $127 billion. This aggressive selling marks a historical precedent for the company, which held a record $325 billion in cash and short-term investments as of September 30, 2024.

Buffett's actions align with historical trends indicating that the S&P 500 often experiences below-average returns following years when Berkshire Hathaway has been a net seller. Since 2010, the S&P 500 has returned an average of 11% in the year following such selling periods, notably lower than its average annual return of 13%.

Additionally, the S&P 500's valuation is concerning, trading at a cyclically adjusted price-to-earnings ratio of 37.9 in December 2024, significantly above the 20-year average of 27. Historically, periods with CAPE ratios exceeding 35 have often led to negative returns in the subsequent one to three years.

Investors are advised to exercise caution in this market environment, with recommendations to maintain a sizable cash position to better navigate potential market drawdowns.

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