According to the Smart Finance App, Berkshire Hathaway, managed by the 'Stock God' Buffett, sold more Bank of America (BAC.US) shares this week, with its core conglomerate reducing its holdings in Bank of America for six consecutive trading days.

According to the latest regulatory documents, 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 up to $802.5 million.

Over the past six trading days, Berkshire Hathaway has reduced its holdings in Bank of America by as much as 52.8 million shares, worth approximately $2.3 billion, and its shareholding ratio has fallen to 12.5%. Berkshire Hathaway still holds 980.1 million shares of Bank of America stock, with a market value of $41.3 billion, far behind the $172.5 billion of technology giant Apple (AAPL.US) it holds.

According to US securities regulatory rules, if Berkshire Hathaway's holdings in any company exceed 10%, it must be disclosed within two working days after the stock changes.

After Bank of America's performance this year continued to outperform the benchmark S&P 500 index, which is headquartered in Charlotte, North Carolina, Buffett may reduce his bet on the bank due to valuation issues and the upcoming Fed rate-cut cycle. The bank's stock has risen by more than 25% since 2024, while the S&P 500 index has risen by nearly 14% over the same period.

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 worth of Bank of America preferred stock and warrants, which at the time fully boosted investor confidence in the Wall Street banking giant, as Bank of America was struggling with losses related to subprime mortgages after the 2008 financial crisis.

As recently as last year, Buffett also gave high marks to Bank of America's leadership, even though he had sold other Wall Street financial giant stocks. In 2022, Berkshire Hathaway divested some of its long-held bank holdings, including JPMorgan, Goldman Sachs, Wells Fargo, and US Bancorp.

'Many years ago, I invited myself to join them, and they did a very decent deal for us. I really like Bank of America CEO Brian Moynihan's style, and I'm just not going to sell it,' Buffett said in 2023 regarding his holding in Bank of America stock.

From the market's interpretation of Buffett's large-scale reduction of Bank of America holdings, the Fed's upcoming rate-cut may be one of Buffett's logics for reducing his holdings in Bank of America. Buffett has always favored taking profits before events occur or when a company's performance begins to decline. This decision also fits with the investment philosophy of Berkshire Hathaway, which is led by Buffett, to make appropriate adjustments when the market environment changes to ensure stable and sustained growth of investments.

The profitability of the banking industry largely depends on the net interest margin (NIM), which is the difference between the bank's loan interest rate and deposit interest rate. Normally, a higher interest rate environment helps to expand the net interest margin, thereby increasing the bank's profitability. If the market expects the Fed to cut interest rates, this may lead to a narrowing of the banking industry's net interest margin, thereby having a negative impact on the bank's profitability. In view of this, investors may be concerned about the future profitability of bank stocks.

In recent days, the interest rate futures market on the US rate cut timing has finally reached a major moment: the interest rate futures traders have priced in the expectation of Fed's rate cut in September 100% for the first time, and the probability of rate cut in December has quickly risen to nearly 60%. This means that the majority of traders bet that the US Federal Reserve will cut interest rates twice, rather than just once as indicated by the Fed's dot plot.

Economists from Barclays Bank recently adjusted their forecast on the Fed's policy, expecting a second rate cut in December after announcing a rate cut in September. Even some interest rate futures traders bet that there might be three rate cuts this year, with the probability of a rate cut in November surpassing 50% in recent days.

In addition, bank stocks often perform relatively poorly during economic slowdowns. The expectation of interest rate cuts usually reflects concerns about economic slowdowns or potential recessions. The banking industry has a high degree of cyclicality in economic cycles, and economic slowdowns may lead to problems such as a decrease in demand for loans and an increase in default rates, which in turn affects the overall performance of banks. "Stock God" Buffett may believe that in the context of rising expectations of interest rate cuts, the risk of the banking industry may increase due to the economy entering a downturn, and it is necessary to reduce exposure to bank stocks.