Although buried beneath the headlines about tariffs and trade policy, Warren Buffett’s Berkshire Hathaway (BRKB) recently made waves when it completely closed out two of its S&P ETF holdings, including the SPDR S&P 500 ETF (SPY) and the Vanguard S&P 500 ETF (VOO).
With the Oracle of Omaha’s stated position that low-cost S&P 500 ETFs are “the best investment most people can make,” there are increasingly concerns that Buffett may be souring on the stock market.
Also of note, Berkshire has completely divested its stake in Ulta Beauty (ULTA) while trimming positions in Bank of America (BAC), Citigroup (C) and Capital One Financial (COF).
Of course, given that the S&P 500 ETFs represented less than 1% of Berkshire’s total portfolio, it can’t necessarily be assumed that Buffet has turned bearish on the broad market entirely.
But, with that in mind, there’s another reason why you shouldn’t allow Buffett’s latest move to cause you any undue alarm.
Most notably, despite the recent and rapid correction in the headline indexes, which was felt most acutely in growth and technology stocks, there have certainly been areas of relative strength, indicating that market participants are not fleeing from equities wholesale.
Healthcare, for instance, has experienced a period of sustained strength to begin the year, with the sector having risen 6.9% thus far in 2025.
Energy has been another bright spot, as the S&P energy sector is higher by 8.8%.
In fact, nine of the 11 S&P 500 sectors are higher year to date.
In essence, despite the headline decline, market liquidity has been ample enough to prevent a broad sell-off, primarily limiting the damage to technology and consumer discretionary stocks.
To monitor this trend, arguably the best major index for determining just how much liquidity remains available for equities in the aggregate is the Russell 2000 small-cap index.
Why the Russell 2000? In the words of veteran market technician Sherman McClellan (inventor of the famous timing indicator known as the McClellan Oscillator), small caps are important because…
“…the small cap stocks are more sensitive to interruptions in the flow of liquidity (money availability). They are like the canaries that coal miners once employed for warning of deadly methane gas pockets; small cap stocks are much more likely to suffer if liquidity begins to dry up. When liquidity is strong, it is easier for the entire market to go up, since there is plenty of money to go around. But when liquidity gets tighter, only the strongest can survive as investors abandon their more marginal stocks in favor of the more liquid ones.”
What is most notable about the current environment, vis a vis liquidity, is that although lagging so far this year, the Russell 2000 has been more resilient for the duration of the recent correction.
In the last month, the Nasdaq Composite, which is most representative of technology stocks, has declined 8.9%.
Over that same period, the Russell 2000 has declined only 6.4%, outperforming technology by 2.5 percentage points and signaling that the sell-off is limited in scope, rather than a market-wide liquidity event.
And while this suggests that a certain measure of circumspection is in order when it comes to initiating new long positions, it also tells us that the growing fear that a bear lurks just around the corner isn’t a particularly strong case right now.
