In 2024, $Berkshire Hathaway(BRK.A)$ $Berkshire Hathaway(BRK.B)$ continued to sell off shares of $Bank of America(BAC)$ , cutting down on BAC's returns.
Between early September and October alone, Berkshire sold around $2 billion in BAC shares, following a sell-off that began back in the spring. This reduction brings Berkshire’s BAC stake below 10%, which is key.
Once the holding falls under 10%, Berkshire is no longer required to “promptly” report future sales. With this level reached, Berkshire may keep reducing its stake without publicizing each sale, especially if BAC’s price rises—more sales are almost inevitable.
Analysts’ Optimism Fuels Market
Despite Berkshire’s moves, analysts remain upbeat about the broader U.S. market, pushing it to new highs. Many recently reiterated ratings and even raised price targets after Q3 earnings, hinting at a moderate “buy” signal and a potential 5%-10% upside.
This market has thrived on a wave of positive adjustments, showing a powerful upward trajectory. However, institutional investors seem wary, echoing Berkshire’s caution. The bullish outlook from analysts might just be steering the market toward a brewing storm.
Institutional Sentiment Takes a Turn
Interestingly, while Berkshire trims its BAC stake, institutional investors are also shifting to a more pessimistic stance. In Q1 and Q2, they were mostly buyers; by Q3, however, they became net sellers. This trend continued into the first two weeks of Q4.
With institutional investors holding a whopping 70% of BAC shares and Berkshire potentially planning further sales, it’s likely institutional selling will persist—intensifying pressure on BAC’s stock price. In this environment, a sustained price increase for BAC seems unlikely.
Consumer Credit Quality: A Looming Risk
For BAC and the wider banking sector, consumer credit quality remains a major risk. While consumer credit demand has risen, fueling an 11% boost in loan activity, credit quality has taken a hit.
Although the current delinquency and charge-off rates are still below 2019 levels, the delinquency rate has risen 175 basis points year-over-year, with charge-offs up 41 basis points. This trend demands attention.
At present, the delinquency rate hovers just 11 basis points below 2019 levels, and charge-offs are only slightly lower. Both metrics could worsen before stabilizing.
BAC’s Resistance at $43—A Tough Hurdle
BAC’s stock has hit a ceiling around $43, coinciding with Berkshire’s sell-off and shifting institutional sentiment. If institutions, whether influenced by Berkshire or not, continue to sell, BAC’s stock will likely struggle to climb higher or even maintain its current position.
In this scenario, a pullback is likely, with a possible retest of the $38 support level—or lower.
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