A total reduction of $2.3 billion in value! "Stock God" Buffett sells Bank of America for 6 consecutive days

According to the financial news app Zhitong Finance, Warren Buffett, known as the "Stock God," managed Berkshire Hathaway, which sold more shares of Bank of America (BAC.US) this week. This marks the sixth consecutive trading day that Warren Buffett's core conglomerate has reduced its holdings in Bank of America.

A recent regulatory filing shows that Berkshire Hathaway, headquartered in Omaha, Nebraska, sold an additional 18.9 million shares of stock at an average price of $42.46 on Monday, Tuesday, and Wednesday, earning a profit of up to $802.5 million.

Over the past six consecutive trading days, Berkshire has sold as many as 52.8 million shares of Bank of America stock, worth about $2.3 billion, reducing its stake to 12.5%. Berkshire Hathaway still holds 980.1 million shares of Bank of America stock, valued at $41.3 billion, far behind its $172.5 billion stake in the US tech giant Apple (AAPL.US).

According to US securities regulations, if Berkshire holds more than 10% of any company, it must disclose the stock changes within two working days.

After Bank of America, headquartered in Charlotte, North Carolina, outperformed the US stock benchmark S&P 500 Index this year, Buffett may be reducing his bet on the bank due to valuation issues and the upcoming Fed rate cut cycle. The bank's stock has risen by over 25% year-to-date in 2024, while the S&P 500 Index has only seen a gain of nearly 14% during the same period.

This is the first time Berkshire has reduced its holdings in Bank of America since the fourth quarter of 2019. Back in 2011, Buffett, known as the "Oracle of Omaha" in the US, purchased $5 billion worth of Bank of America preferred stock and warrants, boosting investors' confidence in this Wall Street banking giant, which was struggling with losses related to subprime mortgages after the 2008 financial crisis.

Just last year, Buffett also praised the leadership of Bank of America, despite having sold other Wall Street financial giant stocks at the time. In 2022, Berkshire Hathaway exited some long-held bank stock positions, including JPMorgan Chase, Goldman Sachs, Wells Fargo, and US Bancorp.

"Many years ago, I invited myself to join, and they did a very decent deal for us. I like the style of Bank of America CEO Brian Moynihan very much, and I just don't want to, I don't want to sell it," Buffett said in 2023 regarding holding Bank of America stock.

Market observers interpret Buffett's significant reduction in Bank of America holdings as possibly related to the upcoming Fed rate cut. Buffett has always favored taking profits ahead of events or at the first signs of declining company performance. Therefore, this decision also aligns with Buffett's consistent investment strategy at Berkshire Hathaway, which involves making appropriate adjustments in changing market environments to ensure stable and sustained growth The profitability of the banking industry largely depends on Net Interest Margin (NIM), which is the difference between the interest rates on loans and deposits. In general, a higher interest rate environment helps to expand NIM, thereby enhancing the profitability of banks. If the market expects the Federal Reserve to cut interest rates, this may lead to a narrowing of NIM in the banking industry, negatively impacting the profitability of banks. As a result, investors may express concerns about the future profitability of bank stocks.

Recently, the U.S. interest rate futures market has witnessed a significant moment regarding bets on when the Federal Reserve will cut interest rates. For the first time, interest rate futures traders have priced in a 100% probability of a rate cut by the Fed in September, with the probability of a December rate cut quickly rising to nearly 60%, indicating that the vast majority of traders are betting on the Fed cutting rates twice, rather than just once as implied by the Fed's dot plot.

Economists from Barclays Bank have recently adjusted their forecasts for Fed policy, expecting a second rate cut in December following the announcement of a rate cut in September. Some interest rate futures traders even bet that there could be three rate cuts this year, with the probability of a rate cut in November rapidly surpassing the key threshold of 50% in recent days.

Furthermore, bank stocks tend to underperform during periods of economic slowdown. Rate cut expectations often reflect concerns about economic slowdown or potential recession. The banking industry is highly cyclical throughout the economic cycle, and an economic slowdown may lead to a decrease in loan demand, an increase in default rates, and other issues that can affect the overall performance of banks. "Oracle of Omaha" Warren Buffett may believe that in the context of rising rate cut expectations, the risks in the banking industry may increase as the economy falters, necessitating a reduction in exposure to bank stocks