Warren Buffett is still betting on America's economy

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By Julia Horowitz • Tuesday, August 16

Good morning. In today's newsletter: Warren Buffett is still in buying mode. Plus, an activist investor wants Disney to spin off ESPN, and WeWork's ex-CEO is wooing Silicon Valley again.

US stock futures are down slightly after the S&P 500 inched higher on Monday. Markets in Europe gained in early trading, while stocks in Asia were mixed.

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What's happening now in markets:

▼ Dow futures 33,868 (-0.01%)

▼ S&P futures 4,295 (-0.07%)

▼ Nasdaq futures 13,669 (-0.09%)

▲ US 10-year yield 2.791%

▼ Gold $1,790.60 (-0.42%)

▲ US oil $90.21 (+0.89%)

▼ Bitcoin $24,046.16 (-0.21%)

MARKET DATA AS OF 7:55 AM EDT

MARKET FLASH

Warren Buffett chooses optimism over angst

It's a moment of great uncertainty for the US economy, as high inflation and rising interest rates feed fears that a recession could be around the corner. But the Oracle of Omaha isn't losing faith.

What's happening: Last quarter, Warren Buffett's Berkshire Hathaway boosted its holdings in Apple by 3.9 million shares, according to new financial disclosures. It also raised its stake in Ally Financial, a financial services firm headquartered in Detroit, by 21 million shares, and scooped up 2.3 million shares of Chevron.

Berkshire's top holdings are now Apple, Bank of America, Coca-Cola, Chevron and American Express, per data from Refinitiv.

Buffett reduced stakes in companies like Kroger, General Motors and US Bancorp, and completely exited positions in Verizon and Royalty Pharma.

But the famed investor's willingness to keep buying signals an ongoing confidence in where the US economy and financial markets are headed.

Berkshire reported about $3.8 billion in net stock purchases during the second quarter. That's on top of more than $40 billion in shares Berkshire bought during the first quarter.

Why it matters: Given Buffett's successful track record and consistent focus on the long-term, his investing patterns are watched closely by traders.

The economic data Buffett and others on Wall Street are combing through right now is muddled, making their jobs difficult.

New York-area manufacturing suffered a large and unexpected setback in August, according to a survey released Monday. The New York Federal Reserve said its Empire State Manufacturing Survey plunged by 42 points. That marks the second-largest monthly decline on record, behind only April 2020, during the early days of the Covid-19 pandemic.

Yet other metrics look more promising, as my CNN Business colleague Matt Egan recently noted:

The economy added more than half a million jobs in July. That pushed the unemployment rate to 3.5%, tied for the lowest level since 1969.
Gas prices have tumbled below $4 a gallon.
Consumer sentiment has bounced off record lows.
The US stock market has gained ground for four consecutive weeks.

"This is not a recession. It's not even in the same universe as a recession," said Mark Zandi, chief economist at Moody's Analytics.

VOICES

The majority of Americans are worried about affording housing

"The surge in rents that took place over the last 12 months has created even greater housing uncertainty for the most vulnerable renters."

KEVIN PALMER, FREDDIE MAC SENIOR VICE PRESIDENT

Read more from CNN Business.

NEWS ALERT

Should Disney spin off ESPN as sports betting grows?

Disney wowed Wall Street last week with strong earnings thanks to solid Disney+ subscriber gains and healthy theme park attendance. But one activist investor thinks it could do more to revive its lagging stock.

The latest: Daniel Loeb's Third Point said Monday that it had bought a new stake in the entertainment giant and is lobbying for change, my CNN Business colleague Paul R. La Monica reports.

Among the most dramatic of its pitches is for Disney to spin off ESPN.

The sports network is an attractive element of the broader streaming bundle with Disney+ and Hulu, Loeb acknowledged. But he thinks there is a "strong case" for ESPN to stand alone given rapid growth in the sports betting industry, which could yield huge profits but hamper Disney's image as a "family first" business.

"ESPN would have greater flexibility to pursue business initiatives that may be more difficult as part of Disney," Loeb wrote in a letter to the company outlining his proposals.

CEO Bob Chapek said last week that his team is "working hard" on a sports betting offering.

"We hope to have something to announce in the future in terms of a partnership there that will allow us to access that revenue stream," he told analysts.

Yet Loeb thinks Disney shares would perform better if ESPN were to be carved out, a popular trend among big companies trying to simplify their pitches to Wall Street investors.

Investor insight: Shares of Disney climbed more than 2% on Monday. But they're still down almost 20% this year, making the company one of the worst performers in the Dow.

UP NEXT

Home Depot and Walmart report results before US markets open.

Also today: Data on US housing starts and building permits for July arrives at 8:30 a.m. ET. Industrial production data follows at 9:15 a.m. ET.

Coming tomorrow: Economists polled by Refinitiv expect to learn that US retail sales for July rose just 0.1% month-over-month.

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WHAT WE'RE READING AND WATCHING

▸ Elliott dumps SoftBank stake after souring on Masa Son (FT)
▸ Apple sets return-to-office deadline of early September (Bloomberg)
▸ Tesla has now built 1 million cars in China (CNN Business)

▸ $3 gasoline could be around the corner (CNN Business)
▸ If the job market is so good, why is gig work thriving? (NYT)
▸ This high-risk investment craze isn't going away (CNN Business)

FINAL WORD

WeWork's ex-CEO is wooing investors again

I've spent a lot of time thinking about the WeWork fiasco. To me — and plenty of financial commentators — the implosion of the company's glittery Wall Street debut in 2019 reads as a parable of Silicon Valley's excess, as investors, flush with cash, poured money into unprofitable startups and thought little about the consequences.

If you watched "WeCrashed" on Apple TV+, there were other lessons to be learned, too. Former CEO Adam Neumann's ouster was framed as a comeuppance, as an egotistical and unsupervised founder was dealt an overdue reality check (even as he floated away on a golden parachute).

But when are stories ever that tidy?

Neumann's comeback: Andreessen Horowitz on Monday revealed that it's backing Neumann's newest venture, a residential real estate company called Flow. The prominent venture capital firm's $350 million investment valued the startup at more than $1 billion, the New York Times reported.

In a blog post, co-founder Marc Andreessen outlined his belief in Neumann, who he called a "visionary leader."

"Adam, and the story of WeWork, have been exhaustively chronicled, analyzed, and fictionalized — sometimes accurately," Andreessen wrote. "For all the energy put into covering the story, it's often under appreciated that only one person has fundamentally redesigned the office experience and led a paradigm-changing global company in the process."

That said: Details about the operation remain scant. And Neumann will perform his next act in a much tougher climate, as recession fears and market volatility roil the startup ecosystem and force once high-flying companies to dramatically slash their valuations.