Warren Buffett Reduces Bank of America Stake

Warren Buffett, the billionaire investor, is continuing to reduce his stake in Bank of America (BofA) ahead of the Federal Reserve's anticipated initiation of an interest rate-cutting cycle in mid-September. Furthermore, Buffett has cut his holdings in Apple by half and accumulated a record amount of cash, indicating that at 93, he may be preparing for a downturn in the US economy.

Berkshire Hathaway's Bank of America Share Sale

Buffett's company, Berkshire Hathaway, has been selling BofA shares for the past six weeks, reducing its total position by nearly 13% and generating over $5.4 billion in proceeds, as reported by Bloomberg. Berkshire's most recent filing indicates that an additional $982 million worth of shares were sold last Monday. According to Bloomberg data, Berkshire has sold over 129 million BofA shares in the past six weeks. Despite this, Berkshire remains the bank's largest shareholder, with 903.8 million shares valued at approximately $36 billion as of Tuesday's closing price. However, the size of this position has decreased to levels seen in early 2019. The selling by Berkshire was sudden and without a stated reason, beginning in mid-July when the share price was around or above $40.

Buffett's Apple Share Sale and Cash Accumulation

In addition to selling BofA shares, Berkshire also sold half of its Apple shares and other securities, resulting in a record increase in its cash holdings by $88 billion, reaching an all-time high of $277 billion at the end of the second quarter. As indicated in the chart below, Berkshire sold a net $75.5 billion worth of stock in the second quarter, which ended on June 30. This was just two weeks after the Apple Developer Conference on June 10, which was not particularly successful. The majority of these sales came from Buffett's decision to liquidate half of his Apple shares. Buffett's decision to sell equities and accumulate a record amount of cash is not surprising. As noted in the article "Berkshire's Growing Cash Pile Has A Hidden Message On Stocks", the Buffett Indicator has rarely indicated a more expensive market.

Reasons for Selling Bank of America Shares

Returning to BofA, the Wall Street Journal suggests that Buffett's reason for selling BofA shares may be related to the Federal Reserve's expected interest rate cuts. "If the Fed were to make three quarter-point cuts before the end of the year, the bank expects its quarterly net interest income would be lower by roughly $225 million in the fourth quarter from the second quarter."

Bottom Line

Warren Buffett's recent actions of reducing stakes in Bank of America and Apple, and accumulating a record amount of cash, seem to indicate his anticipation of a downturn in the US economy. It's a move that raises questions about the future of the market and the strategies investors should adopt. What are your thoughts on this? Share this article with your friends and discuss. Remember, you can sign up for the Daily Briefing, which is delivered every day at 6pm.