The 94-year-old, who will retire as Berkshire Hathaway chief at the end of this year, built a record cash pile of $US350 billion before markets slumped earlier this year, leading analysts to say he had seen the crash coming. Millions of loyal followers watch his every move.
Could his decision to ditch banking stocks signal a slump is on the cards?
Policy rollercoaster
Buffett is not alone in selling. Jamie Dimon, JPMorgan’s chief executive, sold around $US31.5 million of his holdings in the investment bank in April. This followed a sale of shares worth $US125 million in 2024, which was his first sale since he took the top job in 2005.
Analysts believe Trump’s economic policy roller-coaster is going to finally hit the American economy in the second half of the year.
US inflation rose to 2.7 per cent in June, with economists saying this is a sign of things to come. Banks will be the canary in the coal mine for any economic issues.
The president’s recent threats to sack Federal Reserve chairman Jerome Powell will only add to concerns that economic policy is going off the rails.
Buffett may have made a bet that America’s banks have peaked.
“Part of this could be driven by expectations that these current equity valuations are not sustainable,” says Gennadiy Goldberg, head of US rates strategy at TD Securities.
US banks have had a great run but there are clear problems on the horizon for the sector, and the broader US economy.
One of the biggest questions is the outlook for long-term government borrowing costs.
Trump’s trade tariffs are widely expected to drive up inflation, which in turn will mean higher yields on US Treasuries as investors demand greater returns.
Banks would benefit from higher interest rates on their bond portfolios, but higher Treasury yields will drive a wave of new pressures across the lending sector. Bad loans could increase as borrowers struggle to repay.
Higher Treasury yields would make other investments look less attractive, triggering a drop in mergers and acquisitions activity. That’s bad news for the investment banks that have been doing so well up until now.
‘Reality check’
Then there is the question of what happens to Powell at the Fed.
If Trump does oust the Fed chairman and replace him with someone more pliable, interest rates would likely fall but longer-term borrowing costs, namely 10-year Treasury yields, would soar on expectations of higher inflation in the future. Lower borrowing costs would also stoke concerns about inflation.
Bill Gross, the co-founder of bond trading giant Pimco, said on X: “Investors wake up! […] I for one am moving defensively — more cash, buying value with 4-5 per cent dividend yields. And an emphasis on non-US.”
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Bank bosses have also been sounding the alarm.
Goldman Sachs chief executive David Solomon, Citigroup boss Jane Fraser and Bank of America head Brian Moynihan and Dimon at JPMorgan have all urged against ousting the Fed chairman.
Beyond what happens at the Fed, concerns are growing about the outlook for the US economy. Trump’s trade war is injecting sand into the engines of growth.
Numerous forecasters have slashed their expectations for growth, including the Federal Reserve, which has twice cut its GDP forecast for 2025 down from 2.1 per cent in December to 1.4 per cent.
Kambiz Kazemi, chief investment officer at Validus Risk Management, believes a “reality check” is coming.
“Uncertainty around tariffs, and more generally, uncertainty about most subjects, the way the administration is running things, is going to be slowly eroding the trust in the system. The reality has to catch up.”
The 94-year-old, who will retire as Berkshire Hathaway chief at the end of this year, built a record cash pile of $US350 billion before markets slumped earlier this yearCredit: Bloomberg
When the economy deteriorates, banks always underperform the wider market because they play such a central function in the economy through their loan books.
So far, banks’ trading arms have been benefiting hugely from the volatility as investors scramble to move stocks around. But other divisions that write loans, advise on deals or underwrite international trade are unlikely to fare as well.
“The big, big red flag is going to be consumption. If things cost more because inflation has gone up, if unemployment goes up, it is going to affect consumption,” says Kazemi.
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“When consumer spending goes down, there is a ripple effect on everything to do with borrowing. It becomes a bit of a feedback loop.”
Berkshire Hathaway still has substantial holdings in the banking sector. Of its current portfolio, 16.4 per cent is invested in American Express and 10.1 per cent is still in Bank of America. But exposure has definitely been reduced.
“It’s always hard to know how much of Berkshire’s selling reflects macroeconomic pessimism versus firm-specific or internal considerations,” says Cunningham.
“[But] It’s also notable that Berkshire seems to be leaning more into energy and consumer goods lately — Occidental Petroleum and Constellation Brands, for example — which could indicate a shift toward sectors seen as more resilient in a volatile environment.”
In other words, buckle up – and don’t bet on banks.
Telegraph, London
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