When we do our market analysis, we go through a ton of different indexes all over the world.
But specifically within the U.S. you have things like the S&P500, Russell2000, Nasdaq100 and of course the Dow Jones Industrial & Transportation Averages. These are just a few of the most popular ones.
You can go on and on with the Value Line Indexes, Wilshire 5000, NYSE Composite and the list goes on and on.
They all serve a purpose in our analysis and all represent the market in different ways, whether it be using market capitalization, broadness of measurements and even specific sector exposure.
But you know one that doesn’t get the credit it deserves?
You can argue that Financials are the most important sector in America. Berkshire is the largest component of the S&P Financials Sector Index (13% weighting). You can argue Industrials are the most important sector in America, considering it has the highest positive correlation with the S&P500 among all S&P Sectors. And Berkshire has a ton of exposure there as well (think Railroads and UPS for example).
So when it comes down to it, as Berkshire goes, so goes the market.
It’s an important Index, just like all those others.
And if you had to tell the story about the market market this year, I think this chart really does a good job of that:
How this consolidation resolves will likely tell us a lot about the next direction of the market overall.
If Berkshire is breaking out of this base, do you want to be long stocks?
If Berkshire is breaking down from this massive range, do you want to be long stocks?
So if you’re looking for a bellwether, this is probably it.
New lows are no bueno. New highs are muy bueno.
That’s how I see it for Uncle Warren.
How do you see it?
Do you agree?