Sudden Selloff in Financial Stocks!

Selling spree strikes.

According to the latest report released by Goldman Sachs, hedge funds, known as "smart money," are continuously shorting financial stocks such as banks.

In the past seven weeks, financial stocks have been sold off for six weeks.

The report also emphasizes that this wave of selling is global, apparently led by the developing markets in North America, Asia, and Europe.

In the North American market, the selling actions of hedge funds are particularly evident.

Notably, in this wave of selling, "Stock God" Buffett's actions are very resolute.

Since mid-July this year, he has been continuously selling shares of Bank of America, the second-largest bank in the United States.

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According to the latest SEC filings, Berkshire Hathaway has sold approximately 150 million shares of Bank of America, cashing out about $6.2 billion (approximately 44 billion yuan).

Some analysts believe that this wave of selling may be related to the Fed's interest rate cut expectations.

Once the Fed's interest rate cut cycle is opened, it will weaken the interest income of U.S. commercial banks.

According to analyst expectations compiled by Visible Alpha, analysts expect Bank of America's net interest income to grow by 5% in 2025, compared to a much smaller increase expected for large banks such as Citigroup, JPMorgan Chase, and Wells Fargo, or even a decline.

On September 2nd, local time, Goldman Sachs said in its latest report that hedge funds, known as "smart money," are continuously shorting financial stocks such as banks.

The report stated that as of last Friday's close, financial stocks have become the most net-sold sector in Goldman Sachs' institutional brokerage trading department.

This department of Goldman Sachs specifically serves global hedge funds.

The report also showed that banks, insurance companies, publicly traded real estate investment trusts, and capital market companies that allow people to trade bonds and stocks have all encountered net selling for the fourth consecutive week.

According to Goldman Sachs' data, financial stocks have been sold off for six out of the past seven weeks.

The report also emphasized that this wave of selling is global, apparently led by the developing markets in North America, Asia, and Europe.

Goldman Sachs believes that financial stocks, especially large banks, have made substantial profits in a low-interest-rate environment, but have not been converted into actual profits, instead leading to increased profit pressure.

This has led to a large shorting by hedge funds, which may be a preemptive layout for the future market trend.

Goldman Sachs pointed out that the financial sector has become the area with the most net selling in the institutional brokerage trading department, a trend that not only reflects investors' concerns about the current economic downturn and market uncertainty but also reveals the pessimistic attitude of hedge funds towards the future market direction.

"Especially in the North American market, the selling actions of hedge funds are particularly evident, indicating the market participants' skepticism about the pace of economic recovery," the report said.

Goldman Sachs further explained that the news of layoffs and declining trading volumes "emerge one after another," which not only affects investors' confidence but also directly challenges the profit prospects of banks.

Goldman Sachs' report also shows that hedge funds have made moderate net purchases in the consumer finance sector.

Buffett sells 44 billion yuan.

In this wave of selling, "Stock God" Buffett's actions are also very resolute.

Since mid-July, he has been continuously selling shares of Bank of America, the second-largest bank in the United States.

According to the latest SEC filings, Buffett's Berkshire Hathaway sold a total of 21.1 million shares of Bank of America at an average price of $40.24 on Wednesday, Thursday, and Friday last week, cashing out about $850 million (approximately 6.1 billion yuan).

After the latest reduction transactions, Berkshire Hathaway is still the largest shareholder of Bank of America, holding 882.7 million shares, accounting for 11.4% of the shares, with a corresponding position value of nearly $36 billion.

It is worth noting that Buffett's actions in selling Bank of America are very resolute, reducing holdings for six consecutive trading days.

Since July 17th, Berkshire Hathaway has sold Bank of America shares on 21 out of the past 33 trading days.

According to statistics, Berkshire Hathaway has sold approximately 150 million shares of Bank of America, cashing out about $6.2 billion (approximately 44 billion yuan), and the reduction ratio has reached as high as 14.5%.

According to Buffett's habits, when he continues to sell a stock heavily, he is most likely to clear the stock in the end.

Therefore, Buffett's selling of Bank of America may not have ended yet.

Looking back, Berkshire Hathaway's investment in Bank of America began in 2011 when the stock price of Bank of America was only $5.

Before Buffett's heavy selling, the stock price of Bank of America had risen by more than 30% year-to-date.

However, since the sale, the stock price has fallen by nearly 10%, narrowing the year-to-date increase to 21%, currently at $40.75.

So far, Buffett himself has remained silent on the reasons and intentions for reducing Bank of America.

Outside speculation includes that Bank of America's valuation is too high, and Buffett may be preparing for the Fed's interest rate cut.

Buffett said last year that although he is worried about the entire banking industry, he does not want to sell Bank of America's shares, and he "very much" likes Bank of America CEO Brian Moynihan.

What is the bearish news?

Currently, the Fed's interest rate cut is "imminent."

On September 3rd, according to CME's "FedWatch," the probability of the Fed cutting interest rates by 25 basis points in September is 69%, and the probability of cutting by 50 basis points is 31%; the probability of the Fed cutting interest rates by 50 basis points by November is 50%, cutting by 75 basis points is 41.5%, and cutting by 100 basis points is 8.5%.

This indicates that the Fed's interest rate cut at the meeting on September 17th-18th is almost certain, with almost no suspense.

Citigroup economist Robert Sockin said in an interview with Yahoo Finance that the Fed may cut interest rates beyond market expectations in the face of rising unemployment, expecting the bank to cut interest rates by 125 basis points before the end of the year.

Robert Sockin said, "Our U.S. team expects the Fed to start with a 50 basis point cut, followed by another 50 basis point cut, estimating that it will actually cut interest rates by 125 basis points this year."

Analysts believe that once the Fed's interest rate cut cycle is opened, it will weaken the interest income of U.S. commercial banks.

Once the interest rate is cut, the interest income brought to banks by loans priced at the benchmark interest rate will begin to decrease.

According to Bank of America's forecast, if the Fed cuts interest rates three times by 25 basis points before the end of the year, Bank of America estimates that its net interest income in the fourth quarter will be about $225 million less than in the second quarter.

According to analyst expectations compiled by Visible Alpha, analysts expect Bank of America's net interest income to grow by 5% in 2025, compared to a much smaller increase expected for large banks such as Citigroup, JPMorgan Chase, and Wells Fargo, or even a decline.