Buffett’s Surprise Sell-Off of BofA Shares Stirs Market Speculation Amid Labor Day and Fed Rate Cut Forecasts

On September 2, U.S. financial markets will take a one-day hiatus in observance of Labor Day. Consequently, trading for precious metals, U.S. crude oil, and stock index futures on CME, as well as Brent crude oil futures on ICE, will end prematurely. Market participants should take note of these schedule adjustments as they plan their activities for the upcoming week.

Legendary investor Warren Buffett's Berkshire Hathaway has made another notable move by selling off a substantial portion of its holdings in Bank of America (BofA). As per the most recent data as of August 30, Berkshire's stake in the bank's outstanding shares has now dropped to 11.4%. This follows a series of divestments totaling roughly $2.88 billion for the month. The latest move includes the sale of approximately 21 million shares between August 28 and 30, generating $848 million. This pattern of steady sell-offs is raising eyebrows, given Buffett's reputation as a long-term investor.

Buffett initially invested in BofA in 2011, spending $5 billion on preferred stock and warrants, which made Berkshire the bank's largest shareholder over time. However, this shift has left many market watchers speculating about Berkshire's future investment strategy and its possible impact on BofA's stock price. Investors will be closely monitoring further disclosures to gauge Buffett's next moves.

On a more macroeconomic note, Citibank's senior economist Robert Sockin has suggested that the Federal Reserve may lower interest rates by 125 basis points by the end of the year due to lagging employment figures. Sockin predicts that the Fed will initiate a 50-basis-point reduction, followed by another 50 points, concluding with a 25-basis-point cut at its December meeting.

The recent unexpected rise in the U.S. unemployment rate from 4.1% in June to 4.3% in July, coupled with a slight decline in initial jobless claims, provides a backdrop for Sockin's forecast. The ongoing labor market fragility makes it highly likely that the Fed will act more aggressively than the market currently anticipates. Future employment data will be critical in shaping the Fed's policy actions.

According to the CME's FedWatch tool, investors currently expect a 25-basis-point rate cut in September, with a lower likelihood of a 50-basis-point reduction. Federal Reserve Chairman Jerome Powell indicated at the recent Jackson Hole symposium that the Fed is ready to adjust policy based on upcoming economic data. The Fed remains committed to its dual mandate of maintaining 2% inflation and fostering employment, while adjusting its approach to monetary easing as necessary.

In summary, the upcoming U.S. market closure, Buffett's significant divestment from Bank of America, and Citibank's aggressive rate cut forecast signal a period of potential volatility and strategic repositioning in financial markets. Investors are advised to stay informed and vigilant as these developments unfold.