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Stock Market News: Berkshire Sinks Despite Buffett Optimism; Gilead Rises on Coronavirus Hopes

By Dan Caplinger – Updated Feb 24, 2020 at 11:46AM

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Markets took a huge hit on new concerns about the spreading COVID-19 outbreak.

The stock market dove on Monday morning, reacting negatively to news that the COVID-19 outbreak saw a considerable increase in new cases in South Korea and Italy over the weekend. The spread of the coronavirus is raising fears that the outbreak could have much longer-term impacts on the global economy than many currently expect. Stocks in industries most directly affected by the outbreak, such as airlines and leisure companies, saw some of the biggest hits. As of 11 a.m. EST, the Dow Jones Industrial Average (^DJI -1.15%) was down 839 points to 28,153. The S&P 500 (^GSPC -1.02%) fell 91 points to 3,246, and the Nasdaq Composite (^IXIC) was off 309 points to 9,267.

Berkshire Hathaway (BRK.A -1.04%) (BRK.B -1.09%) released its annual letter to shareholders over the weekend, and the stock wasn't able to escape the day's declines for the overall market despite some positive comments from CEO Warren Buffett. Meanwhile, Gilead Sciences (GILD -0.76%) saw significant gains, as some investors see the biotech giant as a possible beneficiary from the coronavirus outbreak based on some preliminary reports.

What Berkshire told its shareholders

Shares of Berkshire Hathaway were down about 2.5% Monday morning, in line with the overall market's declines. Investors got a mixed bag from the insurance giant's fourth-quarter financial results, but most of the shareholders who paid closest attention to their letter from CEO Warren Buffett seemed satisfied with where the company is right now.

From an earnings perspective, Berkshire Hathaway's numbers get skewed by the mark-to-market rules governing its investment portfolio. So although a strong stock market lifted earnings dramatically, some investors weren't as pleased with the more sluggish performance of some of its major wholly owned business units, such as its railroad and energy operations.

Yet Buffett expressed his continued optimism about the stock market over the long term. With Treasury securities yielding less than 2%, the Berkshire CEO sees it as "almost certain" that stocks will beat bonds from here. That doesn't mean market crashes couldn't take a huge bite out of stocks in the short run -- but that possibility isn't stopping Buffett from staying confident.

Buffett also once again reached out to any shareholders wanting to sell their Berkshire stock, having reported only minimal buybacks of about 1% during 2019. Some investors would like to see greater repurchase activity, but it's up to major Berkshire shareholders to decide whether they're in the mood to sell.

Person in white coat holding stethoscope, in a hazy hallway.

Image source: Getty Images.

Can Gilead save the world?

Shares of Gilead Sciences rose 4% as investors looked for any kind of reassurance about possibly treating those hit by the COVID-19 outbreak. Gilead got a vote of confidence from a major player in the fight against the coronavirus, sparking even greater hope that a treatment could come soon.

The World Health Organization said that the experimental antiviral drug remdesivir might prove effective in fighting the coronavirus. Gilead has been working with health authorities in China on a clinical trial for those infected with COVID-19, with expectations for early results coming as soon as April. The company is also offering emergency treatment under compassionate use requests.

In anticipation that the treatment could prove effective for greater use, Gilead has also boosted its manufacturing capacity for remdesivir in order to ensure constant supplies. A stockpile of the treatment was already in place following the outbreaks of Ebola in recent years.

Remdesivir is likely to be just a small part of what drives Gilead's long-term success down the road. However, a high-profile victory in the fight against the coronavirus would be potentially huge -- and perhaps help Gilead break out of a slump in its stock price that's lasted for years.

Dan Caplinger owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Gilead Sciences and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$416,300.00 (-1.04%) $-4,367.49
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$276.31 (-1.09%) $-3.05
Gilead Sciences Stock Quote
Gilead Sciences
GILD
$64.95 (-0.76%) $0.50
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$29,926.94 (-1.15%) $-346.93
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,744.52 (-1.02%) $-38.76
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,148.64 (%)

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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