When Buffett and Soros are both "cutting their positions"?

Recent reports show that many well-known fund companies are heavily selling large-cap technology stocks. Buffett and Soros are cutting their positions in the "Big Seven Tech Giants" and increasing cash holdings to prepare for a market pullback.

The latest inflation data in the United States has reduced concerns about an economic recession, leading investors to flock back to the stock market. In the past week, the U.S. stock market rebounded, pulling stocks back from what seemed like a deeper correction. However, there are still signs indicating that a larger correction is looming.

Large-cap tech stocks heavily sold by well-known funds

Before the market's economic outlook on AI shifted from optimistic to pessimistic, some investors seized the gains from this sector. In the first and second quarters of this year, the "Big Seven Tech Giants" (Alphabet, Apple, Tesla, Microsoft, Amazon, Meta, NVIDIA) symbolized the upward trend, with the Bloomberg Big Seven Price Return Index rising by 17% in both quarters.

However, in the four weeks starting from July 10th, the NASDAQ 100 index fell by 14%. Drew Mille, who served as Soros's chief strategist for over a decade, stated in a CNBC interview in May that the artificial intelligence frenzy may have been "overhyped" in the short term.

Soros Fund Management's regulatory filings as of June showed that the fund sold around $58 million worth of Alphabet shares and about $15 million worth of Amazon shares.

Drew Mille was one of the investors who reduced their holdings in NVIDIA. The filings showed that his Duken Family Office sold over 1.5 million shares of NVIDIA stock.

Meanwhile, billionaire hedge fund manager David Tepper's Appaloosa Management cut its holdings in Amazon, Microsoft, and Meta; TPG Capital, founded by David Bonderman, cleared its Meta position and sold $24 million worth of stock; Iconiq Capital, known for managing Zuckerberg's funds, sold $2.5 million worth of Apple shares; Kemnay Advisory Services, managing the wealth of duty-free shop billionaire Allen Park, reduced its holdings in NVIDIA, Apple, Microsoft, Meta, Alphabet, and Amazon.

Buffett significantly increases cash holdings, waiting for a market pullback

Buffett's Berkshire Hathaway company raised its cash level to a record $189 billion in the second quarter of this year, seemingly as a defensive move as the fund prepares for a larger stock market pullback. Of course, this will also provide Berkshire Hathaway with an opportunity to reinvest in the market at more reasonable valuation levels. Berkshire Hathaway last held a record amount of cash before the 2022 bear market pullback. There are usually three main reasons for increasing cash holdings, but currently two reasons are particularly prominent: one is to maintain cash on hand to seize opportunities in the market; the other is to increase cash to protect the fund from the impact of market downturns.

But things are more complicated than this, this time Buffett may be waiting for a market pullback.

Historically, the S&P 500 index experiences a 20% or more pullback approximately every 18 months. These healthy pullbacks provide an opportunity for market valuations to reset from overbought levels, which is also a reason for investors to buy stocks again.

Buffett has also publicly expressed his view that the market is overvalued, making holding cash until opportunities arise a wise move. Buffett is telling us that the market needs a reality check.

Soros is also anticipating a market pullback

Both Soros and Buffett are reducing their long-term stock holdings to increase their cash holdings. However, Soros goes a step further by buying put options to hedge against downside risks.

According to the latest 13F filing from Soros Fund Management, this billionaire hedge fund manager has added an existing S&P 500 hedge position. In this portfolio, holdings include put options on Apple (AAPL), put options on High Yield Corporate Bond ETF (HYG), and put options on S&P 500 ETF (SPY), with a total value of $500 million for these three put options.

Furthermore, Soros's fund has also established put option positions with a total value of $101 million on VanEck Semiconductor ETF (SMH) and iShares 20+ Year Treasury Bond ETF (TLT).

Most concerning is that Soros is betting on a bearish trend in the bond market. This indicates that the market may face liquidity issues, which will always affect other global markets