🎙️ Apple Intelligence

😄 U.S. Inflation fell in May, providing relief to consumers and increasing the likelihood of interest rate cuts by the Federal Reserve later this year. The stock market loved to see it, closing at another record high.

The annual inflation rate dropped to 3.3% in May, down from 3.4% in April. If price pressures remain muted over the summer, the Federal Reserve may cut interest rates as soon as its September meeting.

But Federal Reserve Chair Jerome Powell said Wednesday that the central bank won’t yet be lowering rates. “We see today’s report as progress and as, you know, building confidence,” he said. “But we don’t see ourselves as having the confidence that would warrant beginning to loosen policy at this time.”

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Inside Buffett’s love for Occidental stock

• Apple soars on AI rollout

This, and more, in just 5 minutes to read.

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In The News

⛽ Inside Warren Buffett’s Love Affair With Occidental Petroleum

Berkshire Hathaway has doubled down on Occidental Petroleum — again. It’s his sixth-largest holding, after all.

In a move that underscores its bullish view on the oil and gas industry, Warren Buffett's Berkshire Hathaway has significantly increased its stake in Occidental Petroleum Corp. (ticker: OXY). Over three trading days, from Wednesday through Friday of last week, Berkshire acquired an additional 2,565,477 shares of OXY at an average price of $59.75 per share.

Another $150 million investment: Buffett’s latest purchases, valued at over $150 million, bring Berkshire's total holdings in Occidental Petroleum to 250,583,605 shares, representing a 28% interest in the company. Berkshire now holds about $15 billion worth of OXY stock.

(As a holder of more than 10% of Occidental's outstanding shares, Berkshire must report any transactions within two business days, hence the prompt disclosure of these recent acquisitions through an SEC filing.)

Buffett's continued confidence in Occidental: The move marks Berkshire's first purchase of Occidental shares since February, indicating Warren Buffett's continued confidence in its prospects. 

• The Oracle of Omaha is simply seizing the opportunity presented by the recent decline in OXY's stock price, which closed at $59.48 last week, well below its 2023 high of around $69 per share.
  

• If you analyze Buffett’s Occidental purchase, you’ll notice the discipline that’s made him one of the world’s greatest investors: He almost always buys the stock only when it falls below $60 per share.
  

• It's not just Buffett's discipline. Potentially at play: Berkshire's warrants to buy at $59.624 per share.

Buffett has previously stated that Berkshire has no interest in acquiring Occidental outright. Still, the company's "vast oil and gas holdings" and "leadership in carbon-capture initiatives" have caught his attention.

Why it matters:

Berkshire's ties with Occidental Petroleum date back to 2019, when he began scooping up shares. 

Long-term game: Occidental Petroleum fits Buffett's criteria for a traditional value investment mainly because it generates substantial cash flow and engages in share buybacks. It’s also likely that this is a traditional long-term investment for Berkshire partly because of its succession plan.

• Greg Abel, Buffett's heir apparent, chairs Berkshire Energy Holdings, so there is speculation that Occidental's CEO Vicki Hollub could one day lead the energy subsidiary. 

Market leader: Occidental is a leading entity in the oil and gas industry, with diversified operations across the U.S., Latin America, and the Middle East. As of the end of 2023, the company had nearly 4 billion barrels of oil equivalent in net proved reserves, with a balanced production mix of oil and natural gas. 

Shares in OXY are flat in 2024 and up about 22% over the past five years. It was the S&P 500’s top performer in 2022 after more than doubling.

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✈️ Activist hedge fund Elliott takes $1.9 billion stake in Southwest Airlines

🤯 Evercore thinks Nvidia could become 15% of the S&P

❓ Why isn’t the Fed cutting rates when it’s winning the inflation battle?

💰 Family offices are planning big investments in private companies

📱 Apple Shares Soar Amid AI Rollout

The Apple freight train is underway.

Shares in the iPhone maker have soared roughly 9% this week alone, overtaking Microsoft as the world’s most valuable company again. The catalyst: its long-awaited push into AI at its annual developer conference on Monday.

Apple, a Buffett favorite since 2016 and Berkshire’s largest holding, has seen its shares rise over 340% in the past five years. Its market cap was recently at $3.27 trillion.

What appealed to investors the most was its plans to bring a personalized version of artificial intelligence to its 2.2 billion device users, including a new deal with ChatGPT-maker OpenAI.

Apple Intelligence: Apple has taken a major leap forward in artificial intelligence by unveiling its new "Apple Intelligence" system, a groundbreaking AI that offers a glimpse into what experts consider the holy grail of AI technology – a voice assistant imbued with enough personal user information to provide meaningful assistance in completing a wide array of tasks.

• “We think Apple Intelligence is going to be indispensable to the products that already play such an integral role in our lives,” CEO Tim Cook said.
  

• The Apple-OpenAI partnership integrates some of ChatGPT's advanced capabilities into Apple Intelligence, such as answering complex queries and composing messages.
  

• By leveraging the troves of user data already within Apple's ecosystem, the new AI system promises to deliver highly contextualized and tailored assistance, anticipating users' needs and streamlining their daily tasks. In other words, saving them time. 
  

Why it matters:

Apple is about 7% of the S&P 500, and virtually everyone with a brokerage account or 401(k) owns the company in some form. 

Executives unveiled iOS 18 at “WWDC 2024,” focusing on AI and generative AI features. A handful of these features features should be major selling points for the iPhone 16 this fall.

Cautious growth: It’s worth noting that the development of Apple Intelligence may have come at the cost of other software updates and hardware improvements. Non-AI software updates announced at WWDC were relatively minor, and even the iPad software updates were described as "paltry" despite new, powerful iPad Pro models. 

• Some analysts argue that while exciting, Apple Intelligence alone may not convince many users to upgrade from older iPhones or switch from Android. They believe Apple may have been better served to take a "rolling" approach to software updates rather than an annual major release, which could allow AI features to be introduced and improved more gradually as the technology evolves. 

But Apple made a statement this week, as the market shows, by reaffirming its place as the world’s most valuable company and sending a message that it hasn’t been idle amid the AI arms race.

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Quick Poll

On Monday, we asked: As enthusiasm for stocks nears record highs again, which asset do you expect to have a better volatility-adjusted return in the rest of 2024?

— Most readers opted for U.S. stocks continuing to perform well, writing: “The short-term treasuries have been at all-time highs for a long time. U.S. stocks have a better track record over time in terms of outperforming treasuries. The odds favor the stock market.”

— Another said, “I don't think there is enthusiasm in general when it comes to stocks. There are deep-value stocks even in the current market”

See you next time!

That's it for today on We Study Markets!

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