- Goldman, BofA Delay Fed Cut Calls After ‘Last Straw’ Jobs Data
May 11, 2026
(Bloomberg) -- Goldman Sachs & Co and Bank of America Corp are the latest in a growing cohort of Wall Street banks pushing back their forecasts for interest-rate cuts, arguing that both jobs and inflation data make a case for the Federal Reserve to keep rates on hold until at least the end of the year.
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As the Iran war jolts oil markets and stokes inflation, traders are increasing bets that the Fed will keep policy on hold through 2026 — and may even hike in early 2027. The shift is echoed by a growing number of Fed officials, including two dissenters at the central bank’s last meeting, who said the next move could be an increase.
“The data simply don’t warrant cuts this year,” Aditya Bhave, the head of US economics at Bank of America, wrote on May 8. “Core inflation is too high, and moving up. The solid April jobs report was the last straw, especially given hawkish Fedspeak.” Bhave and colleagues now expect that the Fed will not cut rates again until July 2027, a shift from their previous forecast of September of this year.
Rising oil prices on Monday catalyzed a move lower in Treasury prices, higher in Treasury yields, with the policy-sensitive two-year yield up more than six basis points to 3.95% as of 3:30 p.m. in New York. President Donald Trump said Monday that the tenuous ceasefire between the US and Iran is on “massive life support.”
Yields extended their increase after investor demand at the first of the government’s quarterly refunding auctions, a $58 billion sale of three-year notes, fell short of expectations. A Bloomberg gauge of the dollar edged higher, as did US stocks.
As part of the Treasury’s quarterly refunding, it will sell another $42 billion worth of 10-year notes on Tuesday and $25 billion of 30-year bonds on Wednesday.
April’s labor report showed that US employers added more jobs than expected for a second month, underscoring the steadiness of the jobs market even as the Middle East conflict continues. The next major reads of inflation, meanwhile, will come via reports on consumer and producer prices on Tuesday and Wednesday, respectively.
The risk of Fed hikes is “underpriced” by traders, BofA’s interest-rate strategists separately wrote to clients Monday. They recommend selling two-year Treasuries and betting that the front-end of the US yield curve will underperform longer-dated maturities.
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After the April jobs figures on Friday, a Goldman Sachs team led by Jan Hatzius also pushed back their call for the Fed’s next cut to December 2026 from September. They also lowered their estimate for the probability of a US recession in the next 12 months.
Morgan Stanley and Barclays have also been forecasting an extended pause from the US central bank.
What Bloomberg Strategists Say...
“Everyone knows inflation is going higher, but as it does so, discussion in the coming months will inevitably turn to the following: just how long will it remain elevated, will there be second-round effects, and how much (if any) will central banks raise rates?”
-Simon White, Macro Strategist. For the full post, click here.
Still, others on Wall Street, notably Citigroup economists Andrew Hollenhorst, Veronica Clark and Gisela Young, are holding fast to their expectation that the Fed will cut before the end of year. They argue that easing by the central bank is underpriced by traders given lackluster hiring and wage growth in recent months.
Heading into the release of the CPI report Tuesday, the median expectation of economists surveyed by Bloomberg sees the headline figure rising 3.7% year-over-year, up from 3.3% the month prior. The core measure, which excludes food and energy prices, is seen rising 2.7% year-over-year.
“This month we’re definitely going to have a bit of a spicier inflation report,” Matt Hornbach, global head of macro strategy at Morgan Stanley, told Bloomberg Surveillance Monday. “We know oil prices are moving quite a lot every single day and they can have a big influence on the path of inflation into the end of the year.”
--With assistance from Jonathan Ferro and Lisa Abramowicz.
(Updates with latest market prices, context on market movements.)
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- By the numbers: Corporate profits haven't been this smoking hot in years
May 11, 2026
The last time corporate profits looked this good, the world was only just turning the corner on the COVID-19 pandemic.
S&P 500 members are tracking toward 26% year-over-year earnings growth in the first quarter, making it the best earnings season since 2021, said the Bank of America team in a note on Monday.
By the numbers: With results in from 445 S&P 500 companies (86% of index earnings), first quarter earnings season has “blown past expectations,” said BofA strategist Jill Carey Hall.
The numbers to know include:
1) The S&P 500 is on pace to deliver 26% earnings per share growth year over year (18% excluding large one-time gains recognized by Amazon, Google, and Meta) versus consensus forecasts of just 12% on April 1;
2) Strength isn't confined to megacap tech companies: The median company is growing earnings per share by a solid 12% year over year;
3) 64% of companies have beaten both earnings per share and sales expectations, nearly 20 percentage points ahead of the historical average of 42% since 2001; and
4) Sales growth adjusted for foreign exchange fluctuations and inflation is on pace to rise 7% from the prior year.
All of these metrics are the best since 2021, noted Hall.Earnings have been hot!·BofA
Read more: Live coverage of corporate earnings
Bottom line: No doubt enthusiasm over the stability of corporate profits amid the Iran conflict has fueled the S&P 500 to record highs. That and the next wave of AI mania, which could catch another breeze of insanity when Nvidia (NVDA) reports earnings next week.
But the economic backdrop is far from perfect, and the first quarter could prove to be the peak for corporate earnings growth this year.
Said Hall, “While 1Q results suggest robust AI demand and a broadening Industrial recovery, the consumer outlook remains murky. We heard some talk of a "C"-economy from Hilton (i.e., lower and higher income beginning to converge), but most commentary still points to a "K", with McDonalds flagging more lower-income weakness. Planet Fitness scrapped plans to raise prices after weak membership growth, but premium gym Life Time painted a much rosier picture. Although April jobs beat expectations and layoff talk remains contained outside of tech, BAC aggregated credit and debit card data notably softened last week — could just be a blip, or an early sign that higher gas is taking a toll.”
Brian Sozzi is Yahoo Finance's Executive Editor and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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- How The Bank Of America (BAC) Investment Story Is Shifting As Analyst Views Rebalance
May 11, 2026
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Bank of America's fair value estimate has shifted to US$62.98 from US$62.72, a small price target adjustment that reflects fine tuning rather than a wholesale change in view. This move sits against a backdrop of mixed Street commentary, with some analysts lifting targets by US$1 to US$6 while others are trimming by as much as US$10 and even removing the stock from a US Conviction List. Read on to see what is driving these cross currents and how you can follow the evolving narrative around the shares.
Analyst Price Targets don't always capture the full story. Head over to our Company Report to find new ways to value Bank of America.
What Wall Street Has Been Saying
🐂 Bullish Takeaways
On 16 April 2026, Piper Sandler, Truist, Oppenheimer and Keefe Bruyette each lifted their price targets on Bank of America, signalling a cluster of more constructive views on valuation within a short time frame. Goldman Sachs raised its target by US$1 on 6 April 2026, while HSBC upgraded the stock on 1 April 2026, pointing to support from both US and international research desks for the current execution and earnings profile. Jefferies initiated coverage with a bullish stance on 25 March 2026, suggesting that some newer coverage sees room in the story for further progress on profitability and growth opportunities.
🐻 Bearish Takeaways
In contrast, UBS and JPMorgan cut their price targets by US$5 and US$4 respectively on 7 April 2026, reflecting more cautious views on how the current setup lines up with prior expectations. Morgan Stanley trimmed its target by US$6 on 31 March 2026, and Goldman Sachs reduced its target by US$10 on 23 March 2026 and removed the stock from its US Conviction List on 1 April 2026, signalling concern around risk reward and execution against earlier forecasts.
Do your thoughts align with the Bull or Bear Analysts? Perhaps you think there's more to the story. Head to the Simply Wall St Community to discover more perspectives!NYSE:BAC 1-Year Stock Price Chart
We've flagged 1 risk for Bank of America. See which could impact your investment.
What's in the News
Bank of America agreed to pay US$72.5m to settle litigation related to Jeffrey Epstein, resolving claims that the bank aided the financier after earlier reports of a settlement in principle with alleged victims. The bank plans to deploy US$25b of its own capital into private credit transactions, expanding its direct lending activity through its capital markets unit. Alaska Air Group and Bank of America extended their long running co-branded credit card partnership, aiming to deepen integration, expand Atmos Rewards and work toward Bank of America becoming the single issuer. Bank of America and Royal Caribbean Group announced upcoming Royal ONE and Royal ONE Plus Visa Signature credit cards, described as tribanded products with travel focused rewards and perks across Royal Caribbean, Celebrity Cruises and Silversea.
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How This Changes the Fair Value For Bank of America
Fair value is updated to US$62.98 from US$62.72. Revenue growth is modeled at 6.88% compared with 6.79% previously. Profit margin is now 27.46% compared with 27.55%. Future P/E is set at 13.16x versus 13.30x. The discount rate is now 8.97% compared with 8.85%.
Never Miss an Update: Follow The Narrative
Narratives connect a company's business story, forecasts and risks into one clear view that updates as new data and research come through. They help you see how product decisions, capital allocation and external events link back to revenue, margins and fair value.
Head over to the Simply Wall St Community and follow the Narrative on Bank of America to stay up to date on:
How investment in digital engagement and AI driven efficiencies is expected to support customer acquisition, retention and profitability. What expanding private credit, commercial lending and share repurchases could mean for future earnings and balance sheet strength. Why economic volatility, policy changes, higher litigation costs and tougher deposit competition are key risks for revenue growth and margins.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include BAC.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
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- BofA Just Crowned FedEx One of Its Best Ideas: Logistics Giant Joins the US 1 List
May 11, 2026
Quick Read
Bank of America added FedEx (FDX) stock to its “US 1 List” on May 11, recognizing the company’s DRIVE transformation program and margin gains as a high-conviction industrial play. FedEx, Corning (GLW), and C.H. Robinson (CHRW) joined the list together, suggesting that BofA sees freight and logistics volumes stabilizing as an early-cycle economic indicator. The analyst who called NVIDIA in 2010 just named his top 10 stocks and C.H. Robinson wasn't one of them. Get them here FREE.
Bank of America has added FedEx (NYSE:FDX) to its "US 1 List," a collection of its best investment ideas. The move, announced May 11, is a high-conviction symbolic signal even without a fresh price target attached. For long-term investors, the inclusion reframes FedEx stock as one of Wall Street's preferred industrial transformation plays heading into the second half of the year.
Notably, Bank of America also added two other names to its US 1 List on the same day: Corning (NYSE:GLW) and C.H. Robinson (NASDAQ:CHRW). The grouping hints at a coordinated thesis across freight, parcel, and AI-linked components.
Ticker Company Firm Action Old Rating New Rating Old Target New Target FDX FedEx Bank of America Added to US 1 List n/a n/a n/a n/a
The Analyst's Case
The US 1 List is hand-picked by analysts, which is what makes this analyst upgrade signal carry weight. Bank of America's thesis rests on continued structural margin gains from the DRIVE program, deeper Ground and Express integration, stabilizing e-commerce and B2B parcel demand, and restored pricing power after post-pandemic volume normalization.
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The simultaneous addition of CHRW stock reinforces the read. Two logistics names landing together suggests Bank of America's research team sees freight and parcel volumes troughing, with logistics often acting as an early-cycle indicator for broader industrial activity.
Company Snapshot
FedEx carries a market cap of $90.92 billion and just posted a Q3 FY2026 adjusted EPS of $5.25 versus $4.13 consensus on revenue of $24 billion, up 8.3% year over year. Management raised FY2026 adjusted EPS guidance to $16.05 to $16.85 and now targets more than $1 billion in permanent transformation cost reductions.
Strategically, the FedEx Freight spin-off is planned for June 1, 2026, alongside a fiscal year-end shift to December 31. CEO Raj Subramaniam stated, "[O]ur network and digital transformation is enabling us to make supply chains smarter for everyone."
Story Continues
Why the Move Matters Now
FedEx stock trades at around $381, with shares up roughly 75% over the past year and a forward P/E ratio of 17x. The consensus analyst target sits near $402, and Wall Street currently carries 16 Buy and 2 Strong Buy ratings.
Macro signals also align. FedEx's U.S. retail sales hit $752.1 billion in March, up 2.4% month over month, supporting parcel demand. Peer UPS (NYSE:UPS), by contrast, is mid-transformation with Q1 2026 revenue down 1.3% year over year, sharpening FedEx's relative momentum.
What It Means for Your Portfolio
The bull case for FedEx stock rests on network optimization, pricing discipline, and normalizing e-commerce volumes. The bear case includes Amazon's (NASDAQ:AMZN) expanding logistics network, execution risk on DRIVE, and the freight shipment volume decline of 6% heading into the spin-off.
For prudent investors, the US 1 List inclusion isn't a green light to chase FedEx stock, but it does validate a multi-year transformation story now showing tangible margin traction. Moderate position sizing and patience through FedEx's June spin-off may suit prudent investor portfolios best.
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- BofA Hikes Affirm Price Target to $88: Clean Beat and Raise Sets Up the May 12 Investor Day
May 11, 2026
Quick Read
Bank of America raised Affirm’s (AFRM) price target to $88 from $82 on strong Q3 beat-and-raise results and maintained its Buy rating. Affirm’s valuation at 37x forward P/E already prices execution, so upside hinges on durable GMV growth and unit economics rather than multiple expansion. The analyst who called NVIDIA in 2010 just named his top 10 stocks and Affirm wasn't one of them. Get them here FREE.
Bank of America (NYSE:BAC) analyst Matthew O'Neill raised his price target on Affirm to $88 from $82 on May 11, while reiterating a Buy rating. The analyst upgrade follows a "clean beat and raise" fiscal Q3 2026 report and frames the recent share dip as "a brief air pocket" ahead of the company's investor forum.
Affirm (NASDAQ:AFRM) stock closed at $64.01 on May 8, with shares trading near $62 intraday Monday. The new target sits above the Street consensus of $81.71.
Ticker Company Firm Action Rating Old Target New Target AFRM Affirm Holdings Bank of America Price Target Raised Buy (maintained) $82 $88
The Analyst's Case
O'Neill's price target raise rests on Affirm's $1.04 billion in fiscal Q3 2026 revenue, a 4% beat that grew 33% year over year (YoY). Management also lifted full-year FY2026 revenue guidance to $4,175 million to $4,205 million, the textbook beat-and-raise setup that Bank of America views as a clean read.
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The Bank of America note treats Affirm stock's post-earnings weakness as a tactical setup rather than a thesis crack, with the May 12 investor forum expected to refresh the medium-term financial framework. A credible target update could re-anchor the multiple after the recent pullback.
Company Snapshot
Affirm operates a buy-now-pay-later (BNPL) lending platform that splits consumer purchases into installments and earns through merchant fees and interest on longer-duration loans. Q3 FY2026 GMV reached $11.6 billion, marking the 10th consecutive quarter of 30%+ GMV growth.
The Affirm Card remains the standout, with GMV up 146% YoY and 4.4 million active cardholders. CEO Max Levchin highlighted cash generation, stating that Affirm added "approximately $230 million to our net cash (now at $1.35 billion) since December."
Why the Move Matters Now
Affirm stock trades at a forward P/E ratio of 37x, with a high beta of 3.72 reflecting sharp swings on credit and macro headlines. The valuation already prices in continued execution, so Bank of America's price target raise to $88 leans on durable GMV growth and improving unit economics rather than multiple expansion alone.
Story Continues
The competitive backdrop keeps pressure on Affirm's take rates. The May 12 investor forum is Affirm's near-term catalyst that could either validate the medium-term targets or reset expectations.
What It Means for Your Portfolio
For prudent investors, Affirm stock offers torque to consumer BNPL adoption but carries real cyclical risk. Credit metrics have softened, with 30+ day delinquencies at 3% and the allowance for credit losses rising to 6% of loans held for investment.
Concentration is another watch item, with the top 5 partners accounting for 42% of GMV. Watch for whether the investor forum's medium-term framework supports Bank of America's bullish stance, and consider that moderate position sizing may be appropriate given AFRM stock's historical volatility around earnings and credit cycle headlines.
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- Bill Gates-Backed Fervo Energy Boosts IPO Target to $1.8 Billion
May 11, 2026
(Bloomberg) -- Fervo Energy Co., a geothermal energy developer, is seeking to raise as much as $1.82 billion in a US initial public offering, raising its target from $1.33 billion.
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The Houston-based firm plans to market 70 million shares for $25 to $26 each, up from a previous target of 55.56 million shares at $21 to $24 each, according to a filing with the US Securities and Exchange Commission Monday. At the top of that range, Fervo would have a market value of $7.4 billion based on the outstanding shares listed in its filing.
With backing from Bill Gates’ investment firm Breakthrough Energy Ventures and shale oil producer Devon Energy Corp., Fervo is among a number of energy producers seeking to capitalize on the growing power demand for data centers. The company has about a $7.2 billion potential backlog of contracted revenue from power purchase agreements across its full portfolio, according to the filing.
Fervo also has power agreements with Southern California Edison Co., Alphabet Inc.’s Google and Shell Plc. Alphabet was part of a $462 million investment round in December.
The company’s Cape Station project in Beaver County, Utah, would be one of the world’s largest geothermal projects with 500 megawatts of power. All told, Fervo disclosed 595,900 total leased acres as well as 2.6 gigawatts in advanced development and more than 38 gigawatts in early-stage development.
The company uses horizontal drilling and multi-stage hydraulic fracturing to produce geothermal energy at its pilot project and expects to deliver power at its first commercial station by the end of 2026.
In its filing, it said it reduced drilling times by approximately 75% from 2022 to 2025, lowering drilling costs by about 70%. Current project costs are about $7,000 per kilowatt, with a long-term target of $3,000 per kilowatt.
Fervo had a net loss of $70.5 million on revenue of $138 million in the year ended Dec. 31, 2025, compared with a net loss of $41.1 million on revenue of $199 million a year earlier, according to its filings.
Founders Chief Executive Officer Tim Latimer and Chief Technology Officer Jack Norbeck, are expected to control the company through their holdings of supervoting Class B shares following the offering, the filing shows.
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The offering is being led by JPMorgan Chase & Co., Bank of America Corp., Royal Bank of Canada and Barclays Plc. The company expects its shares to trade on Nasdaq under the symbol FRVO. The IPO is due to price May 12, according to a presentation seen by Bloomberg News.
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- Wall Street pushes back Fed rate-cut expectations. Here is why
May 11, 2026
Investing.com -- Two Wall Street banks have revised their Federal Reserve forecasts, pushing back expected rate cuts as sticky inflation and a resilient labor market reduce the urgency for easing, even as the outlook remains clouded by multiple supply shocks.
Goldman Sachs analyst David Mericle said the bank is delaying its final two forecast rate cuts by one quarter, now expecting reductions in December 2026 and March 2027.
"With energy cost passthrough likely to keep year-over-year core PCE inflation closer to 3% than 2% all year, we think that a combination of lower monthly inflation prints after the oil shock fades and further labor market softening will likely be needed for the FOMC to cut this year," Mericle wrote.
Goldman left its terminal rate forecast of 3%-3.25% unchanged but acknowledged a reasonable chance the Fed could conclude further cuts are unnecessary if the economy holds up.
Bank of America went further, removing its two 2026 rate cuts entirely and pushing them to July-September 2027.
Analyst Aditya Bhave cited a hawkish shift in Fed commentary, with even dovish officials such as Daly and Waller advocating for a pause.
"Inflation is stuck well above target," Bhave wrote, noting core PCE rose to 3.2% year-on-year in March, with oil shock passthrough still in the pipeline.
BofA also flagged fat-tail risks, assigning a 15%-20% probability to rate hikes, which it said would likely be framed as a reversal of last year's cuts, should unemployment fall to or below 4% and core PCE approach 3.5%.
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- JPM Bets on Fintech Playbook to Target Gen Z: What Does This Mean?
May 11, 2026
JPMorgan JPM is sharpening its consumer-banking strategy for Gen Z, borrowing from the fintech playbook with simpler products, lower fees and a more mobile-first experience. The company’s push targets young adults ages 18-24 and customers new to banking, a segment it says numbers nearly 30 million in the United States.
The bank is expanding fee waivers on Chase Secure Banking for customers ages 17-24, allowing 17-year-olds to open accounts in branches and promoting features such as no overdraft fees, early direct deposit, identity monitoring and budgeting tools. The company is also extending Chase Savings fee waivers through age 24 and positioning Freedom Rise and Credit Journey as entry points for building credit.
The digital upgrade is equally central. JPM’s revamped app, developed with input from customers aged 18–24, offers quicker transaction access, an upgraded wallet, easier Zelle access, external account linking, monthly spending insights and timely prompts designed to help users save more, manage payments and build credit.
The strategy reflects changing Gen Z expectations. JPMorgan’s survey found 49% of young adults value strong mobile tools and in-person access equally, while 64% say they cannot build savings or depend on financial support to make ends meet.
For JPMorgan, the opportunity is lifetime value. By pairing fintech-style convenience with more than 5,000 branches, nearly 15,000 ATMs and a broad product suite, it can acquire customers early, deepen relationships across cards, auto, investing and small business services, and convert today’s first-time bank users into long-term, higher-value clients. This will support future deposit, lending and fee growth.
How are Other Finance Firms Attracting Gen Z?
In March, Schwab SCHW launched the Schwab Teen Investor account, a joint brokerage account for teens aged 13 to 17 and a parent or guardian, as part of its push to attract younger clients early and deepen relationships over time. The move builds on Schwab’s momentum with younger investors, with Gen Z accounting for one-third of new-to-firm clients last year and the average client age declining by 10 years over the past decade.
Bank of America’s BAC SafeBalance Spend Account — now accounting for nearly two-thirds of new consumer accounts — aligns with Gen Z’s preference for transparency, simplicity and control. With no overdraft fees and support from budgeting tools, Zelle and AI-powered assistance, Bank of America is strengthening its appeal to younger consumers. These efforts position Bank of America to build lasting primary banking relationships with Gen Z.
Story Continues
JPMorgan’s Price Performance, Valuation and Estimates
JPM’s shares have lost 5.7% over the past six months.
Six Month-Year Price Performance Zacks Investment Research
Image Source: Zacks Investment Research
From a valuation standpoint, JPMorgan trades at a 12-month trailing price-to-tangible book (P/TB) of 2.94X, slight above the industry average.
P/TB Ratio Zacks Investment Research
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for JPMorgan's 2026 earnings suggests a 10.2% rise on a year-over-year basis, while 2027 earnings are expected to grow at a rate of 5.1%. In the past month, earnings estimates for 2026 and 2027 have moved higher to $22.42 and $23.56, respectively.
Earnings Estimates Trend Zacks Investment Research
Image Source: Zacks Investment Research
JPMorgan currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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- JPM Bets on Fintech Playbook to Target Gen Z: What Does This Mean?
May 11, 2026 · zacks.com
JPMorgan is rolling out fintech-style, low-fee Chase accounts and an upgraded app to win Gen Z - targeting 30M new-to-banking customers.
- Where Will Berkshire Hathaway Stock Be in 5 Years?
May 11, 2026
The legendary head of Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B), Warren Buffett, is nearly unmatched in his investing acumen. You don't get a nickname like "Oracle of Omaha" by being a slouch. Although it sometimes seems like it, his success isn't from divining the future; it's from sticking to a clear, disciplined strategy and philosophy that guide his every move.
Buffett has his eyes on the horizon at all times. He believes in finding businesses with fundamental competitive advantages -- "moats" -- and backing them for the long term. As he put it in a letter to shareholders in 2023, "When you find a truly wonderful business, stick with it. Patience pays."
Berkshire Hathaway is surely a wonderful business, and patience has definitely paid. Just a $1,000 investment in Berkshire in 1980 would be worth $2.3 million today. Is that true moving forward though? What do the next five years hold for the company? Let's take a look.
Berkshire's own businesses are humming, especially insurance
Berkshire is a conglomerate that owns a portfolio of subsidiaries as well as a portfolio of investments in outside companies, like its stake in Apple. Although the latter often gets more media attention, the businesses that Berkshire controls are a huge part of its bottom line.
Berkshire's subsidiaries span a diverse set of industries, from energy to manufacturing. Most of these businesses look strong and critically, they provide quite a bit of cash, which enables Buffett to be successful on the investment side of the business.
Insurance has long been the backbone of Berkshire and as of late, Berkshire's insurance segment has been growing rapidly. Its first-quarter 2024 net-underwriting earnings nearly tripled year over year and nearly doubled year over year in Q2 2024. Geico, likely the most well-known of these, is a major part of this growth.
Geico has been outpaced lately by Progressive, which has grown even faster. Berkshire's Vice Chairman of Insurance Operations, Ajit Jain, pointed to Geico falling behind in its use of technology as the main culprit. Progressive has better utilized new tech to manage risk.
The good news here is leadership is aware of this and pushing to catch up. Geico has delivered stellar growth despite this handicap; if it can improve its use of new technology, the business will be that much stronger. Considering Geico has some of the lowest costs of any major insurer, I think this is a recipe for success over the coming years.
It's been a big year for Berkshire's investments
Some major shakeups came this year to Berkshire's core portfolio. The biggest were the sales of nearly half of its stake in Apple followed closely by the sale of a significant portion of its Bank of America position. There have been some purchases as well, but they've been completely overshadowed by Berkshire's shedding of major chunks of core holdings. The company is sitting on a mountain of cash at the moment (and much of it held in relatively liquid assets like short-term U.S. Treasuries). Take a look at the wild upswing in this reserve over the last year.
BRK.A Cash and Short Term Investments (Quarterly) data by YCharts.
What does Buffett have up his sleeve? While it's impossible to know for sure, I think there's a good chance Buffett is concerned that the market is a bit too hot at the moment, but he won't sit on this much cash for too long. I think it's safe to say he and his company have something in mind and are gearing up to make a major investment or two. I think that he believes that he can find other businesses that will outperform Apple and Bank of America in the years to come.
Buffett's age is the elephant in the room
Warren Buffett is 94 years old. I think it's safe to say that he won't be in the driver's seat for too much longer. It's possible his departure could come in the five-year time frame being considered. This will inevitably impact the company as he is one of a kind. However, what he does isn't magic. His vision and philosophy are so ingrained in the company that his departure will be more seamless than some investors fear.
He has never been the sole guiding hand, especially in recent years. He built the company in tandem with the late Charlie Munger, and the two of them groomed a team of managers for years, many of whom have had independent control of parts of the Berkshire portfolio for some time.
I believe that the continued strength of Berkshire's subsidiaries, with the likely major investments that will come from its current pile of cash, means that the next five years will continue to be successful for the company. Even if Buffett departs Berkshire in the near future, the company's stock will outperform the market.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Progressive. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
