Cover:
-As Warren Buffett prepares to retire as Berkshire Hathaway CEO, the spotlight is on companies that use or plan to use the Oracle of Omaha's strategy of combining insurance and investments, which is not as easy as it appears. The Buffett approach is increasingly being used by top alternative asset managers, such as Apollo Global Management and KKR, which incorporate Berkshire Hathaway into their investment strategies. Bill Ackman has been approved to transform Howard Hughes Holdings, a real estate company, into a "mini-Berkshire" with an insurance business. Dan Loeb plans to transform his European-listed investment fund, Third Point Investors, into an insurer focused on the hot annuity market. Other companies using a similar strategy include Markel Group, Fairfax Financial Holdings, Loews, and White Mountains Insurance Group. However, mimicking Buffett's strategy is challenging, as public markets would be awash in Berkshire Hathaways if it were easy. Markel and Fairfax are the closest to Berkshire in structure, generating impressive returns since the mid-1980s.
Interview:
-No update
Tech Trader:
-Nintendo has launched the Switch 2, its first console in eight years, and is now poised to be one of the most successful hardware releases of all time. The Switch 2 went on sale on Thursday, with customers waiting in long lines at GameStop, Best Buy, and other retailers. The hardware delivered what people wanted—a Switch with better technical capabilities that maintains the original's charm and overall form factor. The hot-selling Switch 2 means that Nintendo's consecutive console hex is probably over, as it offers backward compatibility, allowing it to play current-generation Switch games and giving gamers solace that their large investments in software are intact.
The Trader:
-The S&P 500, which reached 6000 points, has not been able to continue climbing, indicating a nuanced signal for investors. The index has gained 1.4% for the week, while the Dow Jones Industrial Average is rising 1% and the tech-heavy NASDAQ Composite is up 2.2%. The S&P 500 is key to the market, but it hasn't passed the test with flying colors. It reached 5999 by noon on Thursday, but sellers pulled it lower due to the risk of market drop. This is the third time since late February that the index came within less than 50 points of reaching 6000 and couldn't surpass it, indicating that there hasn't been enough economic change to boost confidence in stocks' potential soar. The index closed in the green on Friday, with the S&P 500 still below its record high of 6144 hit on February 19.
-Kroger shares have fallen about 9% since early 2025 due to investor appetite for risk. However, Kroger's upcoming earnings report should convince investors that there are plenty of gains to be had. Analysts have not reduced their earnings estimates during the dip, suggesting sentiment rather than fundamentals is responsible for the decline. Kroger stock trades at 13.6 times 12-month forward earnings per share, down from its 2025 peak of just over 15X. The risk reward is appealing at a reasonable 13x, and the stock has room to gain as long as its first-quarter earnings report doesn't disappoint. Analysts expect same-store sales to grow by 2.4%, driven mostly by mild price increases, bringing total revenue to $45.27B. Kroger doesn't have a tariff problem, as only a tenth of its products come from overseas, with just 1% coming from China. This could lift the gross profit margin slightly, though expected earnings of $1.45 per share would be up only 1.4% from the same quarter one year ago due to investments in employees and new technology assets.
Features:
-The Trump-Musk fissure has raised questions about whether Elon Musk poses more harm as Tesla CEO than good. Wall Street has overwhelmingly stated that replacing Musk is unimaginable and that investors should stick with the stock if they believe in his vision for an artificial-intelligence future. Future Fund co-founder Gary Black believes that Tesla without Musk would be a disaster for shareholders, as he is the visionary and architect behind autonomous vehicles and humanoid robots. Wedbush analyst Dan Ives sees Musk as the best asset of Tesla and sees him as CEO until 2030 despite the Trump situation. The question has been raised before, as reported by the Wall Street Journal in April. Tesla board chair Robyn Denholm responded to the Journal report, calling it "absolutely false." Tesla investor Alexandra Merz, a former credit officer at Moody's and founder of L&F Investor Services, defended Musk's leadership in a panel hosted on X, saying she doesn't want Musk replaced.
-The drug industry has been aligning with the Trump administration's efforts to move manufacturing and investment into the US and disentangle the American economy from the Chinese one. However, U.S. pharma companies have recently announced the biggest deals ever for the rights to experimental medicines invented by Chinese companies. These deals, worth around $25B in upfront and potential milestone payments, seem to fly in the face of White House policy. The deals could potentially result in new options for sick patients but also pose a major risk to U.S. biotech firms. The domestic drug pipeline relies on capital from Big Pharma, and now those funds may be going to start-ups in Shanghai, rather than Cambridge, Mass. The recent deals follow a successful trial result last year by US biotech Summit Therapeutics of a new immunotherapy cancer drug it licensed from Chinese firm Akeso. Since then, Big Pharma companies have rushed to get their own drugs to compete with Summit’s product. In November, Merck licensed an experimental drug from a Chinese drugmaker for around $500M up front and another $2.7B in potential milestone payments.
Europe:
-President Donald Trump has had a phone call with Chinese leader Xi Jinping, following the unraveling of a trade truce between the two countries in mid-May. The call, which lasted 90 minutes, was described as a "very good phone call" and resulted in a positive conclusion for both countries. Trump has also announced that Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and US Trade Representative Jamieson Greer will be meeting with their Chinese counterparts soon. Xi invited Trump for a visit and stated that Chinese students are welcome to study in the US. Both countries have accused each other of violating the agreement reached in Geneva, which reduced tariffs from triple-digit levels. The US has indicated that China is slow-walking the lifting of export restrictions on critical minerals, while China has pushed back against the reinforcement of restrictions on access to artificial-intelligence chip technology and electronic design automation software.
Emerging Markets:
-No update
Commodities:
-Wall Street is optimistic that deregulation and tax cuts will impact corporate earnings and favorable trade deals will be struck. Investment advisors are helping clients navigate this complex landscape, and they have not been making adjustments based on shifting government policy. The US dominates the digital economy, with Apple being the world's leading provider of smartphones, e-commerce, digital advertising, cloud computing, electric vehicles, and AI chips for GPUs. The rest of the world, except China, has fallen behind, with China's technology likely not being accepted in the US or Western Europe. The rest of the world is falling further behind in AI, with Europe and Japan lagging behind. A European Commission report revealed that Europe invests only 4% of what the US has invested in AI, and the rest of the world is becoming increasingly dependent on the US
Streetwise:
-Small-caps have been long-term winners in the stock market, with an average return of 15% a year over the past century. Swiss engineer Rolf Banz documented the "size effect" in 1981, which led to IBM's acquisition of Microsoft in 1986. IBM's PC-DOS, a quick and dirty operating system, was a success, but IBM didn't lock down the rights, allowing Microsoft to sell it as MS-DOS to PC clones. This led to the PCjr, which wasn't powerful enough to run Microsoft's Windows software. Goldman Sachs took Microsoft public in 1986, giving it a market cap of $777M, or $2.3B in today's dollars. Investors have enjoyed wild stock surges from personal computing, the internet, and artificial intelligence, with Microsoft valued at $3.5T. Tech giants dominate the stock market, and some argue for a small-cap comeback. Northern Trust analyst Daniel Fang points out that small-caps have underperformed large-caps for 12 years, leaving them cheap. Such cycles since 1930 have averaged nine years in either direction. With interest rates higher, more small-caps will naturally grow to become large-caps, boosting returns for small-cap indexes.