Investors set to sell off US stocks at record high levels
Investors are set to cut their exposure to US stocks to record high levels as global growth expectations have fallen to 30-year lows this month.
A net 82 per cent of investors expect the global economy to weaken, down from 44 per cent in March, according to the most recent Bank of America global fund manager survey.
The survey, which was taken between 4-10 April, found that recession expectations have now reached their fourth highest level in 20 years, with 42 per cent of investors saying a recession is likely.
Global markets have been shaken by US president Donald Trump’s sweeping tariff rollout and the uncertainty created by the administration’s changing position on import tax rates.
The tariffs are widely expected to significantly slow US growth and therefore the entire global economy, as higher prices and a dip in trade eat into confidence.
72 per cent of the fund managers interviewed by Bank of America said that ‘US exceptionalism’ has peaked, as outlook for both US company profits and the dollar reached their worst since 2006.
Meanwhile, inflation expectations reached their highest since June 2021, when US prices were increasing at 5.4 per cent annually, compared to just 2.4 per cent in the most recent figures.
The gloomy outlook has caused a record increase in bond allocation, while US stock allocation has seen its largest two-month drop ever.
While the situation is evolving rapidly, recent financial data has also shown a clear exodus of investor cash from US stocks towards European equities.
US equity index funds experienced larger withdrawals than even during the first quarter of 2020, when financial markets crashed from the coronavirus pandemic, data from Morningstar revealed.
Investors have pulled 4.8bn euros out of US equity index funds since Trump unveiled the tariffs on 2 April, compared to 4.3bn euros withdrawn during the start of the pandemic.
“Although the shift has been amplified in the aftermath of Trump’s tariffs announcement, it is a continuation of a trend that began when Trump returned to office in January,” said Kenneth Lamont, principal of manager research at Morningstar.
“This marks a stark reversal from the long-standing trend of investor preference for US equities. Over the prior five years, European Equity ETF inflows have only outpaced US-focused ETF inflows in two quarters.”