Warren Buffett's Berkshire Hathaway has been a net seller of stock for three consecutive years. This period saw the S&P 500's forward price-to-earnings ratio rise from about 15.5 in October 2022 to 22.2 recently, according to FactSet Research. That figure is above its five-year average of 20.
Torsten Slok, chief economist at Apollo Global Management, stated that forward P/E multiples near 22 have historically correlated with annual returns below 3% over the next three years. The S&P 500 has only sustained a forward P/E above 22 twice in the last four decades: during the dot-com bubble and the COVID-19 pandemic. The index fell into a bear market both times.
President Trump's tariffs are seen by many experts as a likely headwind to economic growth. His trade policies have coincided with a weakening jobs market. Recent Federal Reserve research indicates tariffs have historically slowed growth.
In an October 2008 editorial for The New York Times, Warren Buffett commented as the S&P 500 was down 40% from its high. "Let me be clear on one point: I can't predict the short-term movements of the stock market," Buffett wrote. "I haven't the faintest idea as to whether stocks will be higher or lower a month or a year from now."
He also wrote, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." Buffett once compared short-term market forecasts to "poison."
Bullish sentiment among individual investors is currently high. The American Association of Individual Investors survey showed a reading of 42.5% for the week ending January 7. This is above the five-year average of 35.5%. The AAII survey is considered a contrarian indicator, meaning higher bullish sentiment has historically correlated with lower forward returns for the S&P 500.
The S&P 500 has delivered double-digit returns for three straight years. Historically, such streaks have been followed by a fourth year of lackluster returns. A down year in 2026 is seen as particularly plausible due to the tariff environment.
Buffett's recent actions as Berkshire Hathaway's CEO, before his retirement at the end of 2025, involved being a net seller of stock. This suggests reasonably priced buying opportunities have been hard to find. His philosophy advises caution when others are greedy.