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Geopolitics, Trade Tensions and Fate of U.S. Bull Market Among Investors’ Top Concerns

State Street’s midyear survey also shows continual favor for stocks in tech and financial sectors.

Investors’ top concerns at midyear have increasingly turned to macro-driven issues, amid threats of an escalating trade war, political turmoil this past May in Italy, and recent volatility in the stock and bond markets in the eurozone and emerging markets. Still, professional investors are also wondering if the U.S. equity bull market will continue or whether a sharp correction or bear market will put an end to its multiyear run.

Geopolitics and trade tensions, the end of the U.S. equity bull market, and a global economic slowdown were the top three concerns among professional investors participating in the State Street Global Advisors’ (SSGA) online midyear investor survey. A total of 618 professional investors completed the survey in May of 2018. Those responding represented a variety of investment professional segments holding a wide range of assets under management, according to SSGA.

In the survey, 58% of respondents had a top concern directly related to fiscal or political actions. Nearly one in five investors cited geopolitical/international trade tensions as their top concern. “This reflects a broader focus on global conditions, which come as international exposures comprise a more significant share of investor portfolios,” Mathew J. Bartolini, head of SPDR Americas Research, noted in a June 12 SPDR Blog post, which included the online survey’s results.

While investors’ responses were collected several weeks ago, the 19% who responded that geopolitical/international trade tensions were their top concern would appear to have been on the mark, given the escalation in trade tensions between the U.S. and China during June.

Trade relations between the U.S. and China deteriorated further starting June 15 with the Trump administration’s plans to impose tariffs of 25% on $50 billion worth of Chinese goods, and China targeting a broad range of U.S. exports for similar tariffs, including autos and agricultural products. In a statement on June 18, President Donald Trump requested that his administration identify a new list of $200 billion in Chinese goods for additional tariffs at a rate of 10%.

Other top concerns cited in the recent SSGA investor survey included: a slowdown in the global economy (11% of respondents); tightening global monetary policies (10%); U.S. midterm elections/political gridlock (9%); a yield curve inversion (8%); the federal budget deficit (8%); an increase in inflation (8%); and the bursting of the bond bubble (7%).

End of the Bull Run?

Another 18% of professional investors surveyed by SSGA cited the end of the U.S. bull market as their top concern. And considering how markets reacted to President Trump’s June 18 formal statement of the possibility of more tariffs, an escalating trade war does appear to have some near-term impact on market sentiment as well as whether consumers and businesses remain optimistic about markets and the economy.

“At some point you’ve got to wonder how many times stocks are going to react to the same general bit of news. It may all just be a game of one-upmanship as a negotiating tactic to get to some sort of deal,” said Willie Delwiche, investment strategist at Baird, in a June 19 CNBC article. However, “with investor optimism as high as it is, there might not be much margin for error, and there is a real risk that this starts to erode consumer and business confidence.”

Despite the concern over the fate of the U.S. equity markets in May when SSGA conducted its survey, investors remained upbeat about their year-end forecast for the S&P 500 index. At 2800, the median year-end forecast for the S&P 500 represented a 3.7% increase compared to the previous SSGA survey conducted in December.

Forecasts for oil and interest rates were also higher, with $70 a barrel for oil at year-end the median forecast in the most recent survey, compared to $55 a barrel in December; and a yield of 3.15% for the 10-year Treasury note in the May survey, compared to 2.68% in December.

“While the recent moves higher for oil and interest rates have dominated market discourse, our respondents seem to think stock market current levels are here to stay,” Bartolini wrote in the SPDR Blog post. “This is a paradigm shift from the start of the year when the median forecast for yields was 2.68%, and oil was expected to trade at two-thirds of its current level.”


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