Investors are bailing out of U.S. stocks — big time.
A new survey from Bank of America shows that global fund managers are moving out of domestic companies in what analysts at the financial giant describe as the “biggest drop in U.S. equity allocation ever.” The reason: growing pessimism about the country’s economic outlook as the Trump administration beats the drum for a trade war with Canada, Mexico, China and other countries.
“Peak U.S. exceptionalism is reflected in record rotation out of U.S. stocks,” the analysts wrote in a report. Instead, investors with a dimming view of U.S. stocks are increasingly going to cash, buying gold and investing in other parts of the world, including the Eurozone, BofA found.
After a two-day rebound, leading market indexes stumbled out of the gate on Tuesday. In morning trade, the S&P 500 fell 53 points, or 0.9%, to 5,622; the Dow Jones Industrial Average sank 236 points, or 0.6%, and the Nasdaq Composite dropped 289 points, or 1.6%.
A major shadow over financial markets is the prospect of steep new U.S. tariffs on key trading partners scheduled to take effect on April 2. Those include 25% duties on U.S. imports from Mexico and Canada, as well as even more sweeping matching levies on a number of other countries.
“The size, speed and breadth of U.S. tariff hike announcements since January is staggering,” Brian Coulton, chief economist with Fitch Ratings, said in an email.
The Organisation for Economic Co-operation and Development on Monday downgraded its forecast for U.S. and global growth, citing the risk of escalating trade disputes.
A stark reality is setting in for investors, according to analysts. President Trump’s aggressive rhetoric on trade isn’t simply a matter of posturing to gain negotiating leverage with other countries; rather, he’s perfectly willing to let tariffs fly as part of a long-term strategy of shoring up key American industries and fostering domestic investment.
Whether that strategy ultimately pays off remains to be seen. For now, however, investors are raising their guard.
“A lot of articles have appeared in the last couple of sessions suggesting the White House is working on improving its ‘messaging’ on economic/tariff policies and that’s great, but investors shouldn’t be fooled about what’s coming: The trade/tariff agenda represents a seismic change, and even if one buys the view that this will pay off over time, the near and medium-term will see enormous disruption,” market analyst Adam Crisafulli, head of Vital Knowledge, told investors in a research note.
To be sure, such disruption could bolster stocks if Mr. Trump were to reverse course on his salvo of tariffs set to be deployed next month. And despite the mounting concerns that such trade measures could tip the economy into a recession, BofA’s survey shows that only 11% of fund managers expect a hard landing.
