Smart Finance App learned that Berkshire Hathaway, managed by the 'Stock God' Buffett, sold more shares of Bank of America (BAC.US) this week, reducing its holdings of Bank of America stocks for six consecutive trading days.

According to the latest regulatory filings, 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 Hathaway has reduced its holding of Bank of America stocks by as much as 52.8 million shares, worth about $2.3 billion, and its stake has dropped to 12.5%. Berkshire Hathaway still holds 980.1 million shares of Bank of America stocks, valued at $41.3 billion, far behind its holding of $172.5 billion of the US technology giant Apple (AAPL.US)

According to regulations of the US Securities and Exchange Commission, if Berkshire Hathaway holds more than 10% of a company's shares, it must disclose within two business days after the stock changes.

After the stock of Bank of America, headquartered in Charlotte, North Carolina, performed better than the benchmark index of US stocks, the S&P 500 Index, Buffett may have reduced his bet on the bank due to valuation issues and the upcoming rate cut cycle of the Federal Reserve. The bank's stock has risen more than 25% so far in 2024, while the S&P 500 index during the same period has increased by only close to 14%.

This is the first time Berkshire Hathaway has reduced its holdings of Bank of America since the fourth quarter of 2019. As early as 2011, Buffett, known as the 'Oracle of Omaha' in the United States, purchased $5 billion in preferred stock and warrants of Bank of America, which at the time was a huge vote of confidence for the Wall Street commercial banking giant, which had been struggling to deal with losses related to subprime mortgages since the 2008 financial crisis.

Just last year, Buffett gave high praise to Bank of America's leadership, even though he had already sold other Wall Street financial giant stocks. In 2022, Berkshire Hathaway reduced its holdings of long-held bank stocks, including JPMorgan Chase, Goldman Sachs, Wells Fargo & Co and U.S. Bancorp.

"Many years ago, I invited myself to join. They did a very decent deal for us. I like the style of Bank of America CEO Brian Moynihan, and I'm just not going to sell it," Buffett said in 2023 about holding Bank of America shares.

Market observers believe that the upcoming rate cut by the Federal Reserve may be one of the reasons why Buffett has reduced his holdings of Bank of America. Buffett has always favored taking profits in advance of an event or when a company's performance shows signs of decline. Therefore, this decision also conforms to Berkshire Hathaway's consistent investment strategy under Buffett's leadership, which is to make appropriate adjustments when market conditions change to ensure steady and sustainable growth of investments.

The profitability of the banking industry largely relies on the net interest margin (NIM), the difference between the interest rate charged on loans and the interest rate paid on deposits. In general, a higher interest rate environment helps to expand the net interest margin, thereby increasing the profitability of banks. If the market expects that the Federal Reserve will cut interest rates, this could lead to a shrinkage in the net interest margin of the banking industry, which could have a negative impact on their profitability. Therefore, investors may be concerned about the future profitability of bank stocks.

Recently, an important moment has finally arrived regarding the betting on when the Federal Reserve will cut rates in the interest rate futures market. For the first time, traders have priced in a 100% probability of a rate cut by the Federal Reserve in September, and the probability of a rate cut in December has also quickly risen to nearly 60%, meaning that the vast majority of traders are betting that the Federal Reserve will cut rates twice, rather than once as indicated on the Fed's dot plot.

Economists at Barclays recently revised their forecast for Federal Reserve policy, with expectations that there will be a second rate cut in December following the announcement of a rate cut in September. Even some interest rate futures traders are betting that there may be three rate cuts this year, with the probability of a rate cut in November recently rising above the important threshold of 50%.

In addition, bank stocks tend to perform relatively poorly during economic slowdowns. Expectations of interest rate cuts often reflect concerns about economic slowdowns or potential recessions. The banking industry has a high degree of cyclical characteristics in the economic cycle, and economic slowdowns may lead to problems such as a decline in loan demand and a rise in default rates, which may affect the overall performance of banks. "Stock God" Buffett may believe that under the background of the increasing expectation of interest rate cuts, the risks of the banking industry may rise due to the economic downturn, and it is necessary to reduce exposure to bank stocks.