Warren Buffett Sells Off Longstanding Position Amid Key Sector Weakness
There has been a small rebound but it's not enough to offset key sector weakness.
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Equities have had a small rebound from their deep losses in the prior week over the first two sessions of this new trading week.
The NASDAQ has clawed back a bit over one-third of its 5.8% loss last week, which was its worse weekly performance since 2022. However, the rebound has been unimpressive given the depth of last week’s losses. In addition, there hasn’t been a ton of breadth to what feels like a bit of a dead-cat bounce. For instance, the small-cap Russell 2000, which suffered as bad of a week as the NASDAQ, has only risen by less than a quarter of 1% on Monday and Tuesday.
There also seem to be some chinks developing in some key sectors of the market. The financial sector was off some 1% in trading on Tuesday. JPMorgan Chase & Co. JPM slid 5% in trading on Tuesday after its president came out and stated analysts’ estimates for the bank’s net interest revenues are too high. In addition, Ally Financial ALLY tumbled nearly 18% in trading after its management noted worsening credit conditions among the auto lender's borrowers. It was the worst daily decline in ALLY since the COVID lockdowns began in March of 2020. Acknowledgement of deteriorating consumer credit conditions also caused sympathetic pull backs in other names in consumer finance, like Synchrony Financial SYF.
Investors perhaps have gotten overly optimistic about the current valuations and prospects for the financial sector. The Oracle of Omaha might be likeminded on that thesis, given the billions of dollars of stock he has disposed of recently in longstanding holding Bank of America BAC.
For all of the continued happy talk about a "soft landing" fast approaching, oil and other commodities appear to be signaling declining global growth. Oil has fallen substantially since early April and is in the mi-$60s. The energy sector had a rough go of it despite the rally in the overall market this week.
Being a contrarian, I added a bit to my stakes in two energy plays via covered call orders towards the close of trading on Tuesday. The first of these is energy giant Occidental Petroleum OXY, which is a big position for Doug Kass as well. Not to mention, Buffett continues to use some of his loot from selling BAC to build up an approximate 30% stake in OXY.
I also added some more exposure to refiner PBF Energy PBF, which has suffered a 45% decline since its recent highs in early April. The shares have been hit by declining crack spreads and also new potential legislation in California as the once Golden State seems determine to continue to drive business out.
However, PBF has a solid balance sheet, the stock is trading at a pittance compared to peak earnings and the shares also now have an over 3% dividend yield. The stock also shares something in common with OXY as a beneficial owner has made substantial new purchases during the recent pullback.
It is important to note that I am only nibbling in the current market, and I have a very large amount of "dry powder" to deploy. There still is substantially more investor complacency than there should be given current conditions and valuations. Until this changes, I am just making small trades around selected opportunities.
At the time of publication, Jensen was long OXY and PBF.
