Billionaires Warren Buffett, David Tepper, and Terry Smith Are Sending a Very Clear Warning to Wall Street — Are You Paying Attention?

For the better part of two years, the bulls have been firmly in control on Wall Street. A resilient U.S. economy, coupled with excitement surrounding the rise of artificial intelligence (AI), have helped lift the ageless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and growth-focused Nasdaq Composite (NASDAQINDEX: ^IXIC) to multiple record-closing highs in 2024.

However, optimism isn’t universal when it comes to investing. Some of the most prominent and widely followed billionaire money managers, including Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) Warren Buffett, Appaloosa’s David Tepper, and Fundsmith’s Terry Smith, have been sending an ominous warning to Wall Street with their trading activity.

To be fair, the Shiller P/E has spent much of the last 30 years above its historic average due to two factors:

1. The internet democratized the access to information, which gave everyday investors more confidence to take risks.

2. Interest rates spent more than a decade at or near historic lows, which encouraged investors to pile into higher-multiple growth stocks that can benefit from low borrowing costs.

But when examined as a whole, there are only two other periods throughout history where the S&P 500’s Shiller P/E supported a higher level during a bull market. It peaked at 44.19 in December 1999, just prior to the dot-com bubble bursting, and briefly topped 40 during the first week of January 2022.

Following the dot-com bubble peak, the S&P 500 shed just shy of half of its value, while the Nasdaq Composite lost more than three-quarters before finding its footing. Meanwhile, the 2022 bear market saw the Dow Jones, S&P 500, and Nasdaq Composite all lose at least 20% of their value.

In 153 years, there have only been six occasions where the S&P 500’s Shiller P/E has surpassed 30 during a bull market, including the present. Following all five previous instances, the minimum downside in the S&P 500 has been 20%, with the Dow Jones Industrial Average losing as much as 89% during the Great Depression.

The point is that extended stock valuations can only be sustained for so long. Even though Warren Buffett would never bet against America, and Terry Smith is always on the lookout for undervalued assets, neither billionaire money manager feels compelled to put their capital to work. In fact, Berkshire Hathaway was sitting on a record $276.9 billion in cash at the end of June, and Buffett still isn’t a buyer of stocks… other than shares of his own company.

In short, some of Wall Street’s most-successful long-term, value-seeking investors want little to do with the stock market right now, and it’s a very clear warning that investors should be paying attention to.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Amazon and Meta Platforms. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, Fortinet, Meta Platforms, Microsoft, Nvidia, and Texas Instruments. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Billionaires Warren Buffett, David Tepper, and Terry Smith Are Sending a Very Clear Warning to Wall Street — Are You Paying Attention? was originally published by The Motley Fool