Here's How 5 Warren Buffett Stocks Would Perform in a Severe Recession
Warren Buffett and his company Berkshire Hathaway own many bank stocks, which make up a large part of Berkshire's roughly $317 billion equities portfolio. Banks are cyclical and tend to be tightly linked to the economy, which, if you haven't heard, may well be in a recession at some point this year or next.
Luckily for bank investors, the Federal Reserve recently released the results of its annual stress tests, which put the largest banks in the country through a set of hypothetical adverse economic scenarios to see how they would hold up. This year, banks were put through a scenario in which unemployment would rise and peak at 10.3% between the fourth quarter of 2021 and the first quarter of 2024. During this scenario, encompassing nine quarters, commercial real estate and stock prices would also fall 40% and 55%, respectively.
Stress testing is important for banks because it helps determine how much regulatory capital they must hold, which in turn determines how much capital they can return to shareholders through dividends and share repurchases. Banks return capital to shareholders based on the excess amount they have above their regulatory requirements. Banks are expected to announce their new regulatory capital requirements and new capital return plans on June 27.
Source Fool.com
