Nasdaq in correction territory; Berkshire’s cash holdings reach record high

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Jobs shock hits stocks
U.S. stocks plummeted on Friday after a weaker-than-expected jobs report added to fears of a recession. The S&P 500 shed 1.84% while the Dow Jones Industrial Average retreated 1.51%. The Nasdaq Composite dropped 2.43% and is now in correction territory, having declined more than 10% from its recent high. Treasury yields fell across the board, with the 10-year yield hitting its lowest level since December 2023. The odds of a 50-basis point cut to the Federal Reserve’s benchmark rate stand at 69.5% from 22% before the nonfarm payrolls data, according to the CME FedWatch Tool. Oil as well as gold fell on Friday. 

U.S. unemployment rises
Nonfarm payrolls increased by just 114,000 in July, coming in well below estimates and further spooking investors following Thursday’s unexpected spike in jobless claims and manufacturing data. Nonfarm payroll additions were well below June’s downwardly revised figure of 179,000. The unemployment rate rose to 4.3%, the highest since October 2021 when the global economy was still reeling from the Covid-19 pandemic.

Buffett’s billions
Berkshire Hathaway‘s second-quarter results showed a sharp jump in the company’s cash pile as Warren Buffett sold nearly half its stake in Apple. Berkshire held a record $276.9 billion in cash at the end of last quarter, up from the previous high of $189 billion in the first three months of 2014. Berkshire has been a net seller of stocks over the past seven quarters. Operating earnings from Berkshire’s fully owned businesses rose 15% from last year to $11.6 billion. 

Exxon beats, Chevron misses
ExxonMobil‘s second-quarter net income rose 17% to $9.2 billion from a year ago, beating consensus as it achieved record production in Guyana and the Permian Basin in the southwestern part of the U.S. But Chevron missed expectations, with net income declining 26% to $4.43 billion. Chevron reported a sharp fall in U.S. refining margins and said it was shifting its headquarters from San Ramon, California, to Houston, Texas. 

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Russell Napier, a financial historian argued that it will, noting that rising Japanese interest rates marked the end of the popular “carry trade” — whereby investors borrow in a low interest rate currency like the yen to invest in assets that will likely generate higher returns.

“The now evident vulnerability of U.S. equity prices to a rise in the yen exchange rate warns of the consequences for U.S. asset prices and developed-world asset prices in general from monetary policy changes in the east,” Napier wrote in a report last week.

The Bank of Japan last Wednesday raised its benchmark interest rate to “around 0.25%” from its previous range of 0% to 0.1%, narrowing the rate differential with the U.S. Federal Reserve that had pressured the yen. BOJ also outlined plans to taper its bond buying program in a sign that it was prepared to let Japanese interest rates rise further.

The yen has rallied strongly since falling to a 38-year low of 161.96 to the dollar on July 3. The Japanese currency was trading at 145.36 early on Monday.

The sharp reversal in financial market sentiment has triggered a fall in U.S. mortgage rates to their lowest in more than a year, providing some relief to homeowners and builders of residential property.

According to Mortgage News Daily, the average 30-year fixed mortgage rate declined by 22 basis points to 6.4% on Friday. This marks the lowest rate since April 2023. The 15-year fixed mortgage rate dropped to 5.89%, its best level since early May 2023. 

— CNBC’s Sam Meredith and Diana Olick contributed to this report.