Despite fears of a recession, savvy investors would be wise to follow the lead of investment guru Warren Buffett.
The “Oracle of Omaha” has been scooping up bank shares in the past year, the New York Times reported, offering evidence that the time just may be right for you to be like the 88-year-old chairman and chief executive of Berkshire Hathaway.
Buffett’s Berkshire Hathaway is now among the five biggest shareholders in Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS), U.S. Bancorp (USB) and Bank of New York (BK) and owns big stakes in others.
For example, Berkshire owned 950 million shares in BAC as of July 17, according to SEC filings. It had reported 896.2 million shares at the end of March, Reuters explained.
When the economy is growing strongly, companies and individuals take more loans, and interest rates rise. These factors commonly boost bank stocks, the Times explained. However, with stalling economic growth, recession worries and Federal Reserve rate cuts, some investors naturally don’t see a boom time for banks over the next year. The KBW Bank Index, which is made up of 24 of the leading national and regional banks, is down about 17 percent in the past 12 months. In the same period, the S&P 500 is essentially unchanged, the Times explained.
“Nobody is willing to buy them,” Savita Subramanian, head of United States equity and quantitative strategy for Bank of America Merrill Lynch, said of bank stocks. “They are still treated as the toxic, levered housing play they were in 2007.”
However, some experts say fears of a recession in the United States are overblown. “American consumers, a big engine of the economy, are still holding up — with unemployment low, the job market still growing and inflation nowhere to be seen,” the Times said.
“Banks are much healthier than they were during the financial crisis more than a decade ago. Today, bank capital, the main financial defense against losses, is high, and profit growth continues. In the second quarter, bank profits grew 9 percent, among the strongest performances of the industry groups in the S&P 500,” the Times explained.
Meanwhile, President Donald Trump’s top economic adviser insisted Sunday there’s “no recession in sight,” and that after looking at consumer activity, it’s fair to ask, “What’s wrong with a little optimism?”
In an interview on “Fox News Sunday,” Larry Kudlow, director of the National Economic Council under Trump pointed to bright signs from consumers amid the tumult of Wall Street.
“Consumers are working,” he said. “The wages are rising. They are spending and they’re saving. A lot of Wall Street firms looked at the numbers last week and they raised their forecast. So no, there is no recession in sight.”
“That's about as good as it gets,” he added. “I think we are in pretty good shape and I want to just say we should not be afraid of optimism. I don't know what it is -- everybody wants to talk about pessimism, recession. What's wrong with a little optimism?”
Kudlow also said tax cuts for the middle class — an issue promised after Trump’s tax cuts to businesses — are still on the table, and suggests it may be a good idea to use tariffs on China to fund them.
“Tax cuts 2.0. We are looking at all that,” he said.
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