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

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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.

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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