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BAML Survey: Downside Expected, but Not a Trade-Talk Breakdown


May. 15 2019, Updated 2:11 p.m. ET

BAML survey’s key findings

BAML (Bank of America Merrill Lynch) conducted a survey that polled 250 global investors with $687 billion in total assets under management between May 3 and May 9.

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One of the survey’s key findings was that investors are buying downside protection against a big decline in the equity markets over the next month. A total 34% of investors surveyed have hedged their downside, which represents the highest level ever in the history of the survey, as CNBC reported.

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Investors turning cautious about trade war escalation

Investors have become increasingly cautious about the growth outlook and markets after the United States and China failed to reach a trade deal. In fact, tensions escalated further on May 10 when the United States hiked tariffs on $200 billion of Chinese imports from 10% to 25%. In retaliation, China increased tariffs on $60 billion worth of US goods.

This escalation of the trade war has taken a toll on the markets. On May 3–14, the S&P 500 Index (SPY), Dow Jones Industrial Average (DIA), and NASDAQ Composite Index (QQQ) have fallen 3.6%, 3.5%, and 5.5%, respectively.

Investors braced for downside but not a total breakdown

According to the survey’s chief investment strategist, Michael Hartnett, “No trade deal means post-Fund Manager Survey investor mood has soured significantly.” He added, “Longs in US stocks, EM, discretionary, tech, banks [are] all threatened if key technical levels cannot hold this week.” Moreover, Hartnett also commented that while investors are hedged for downside, they’re not positioned for a complete breakdown in the trade talks.


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