Jan 22, 2020 - Economy & Business

Asset managers say the 2020 election is now the market's top risk

2020 Democratic candidates in Columbia, S.C., on Jan 20. Photo: Sean Rayford/Getty Images

With the "phase one" trade deal signed, major asset managers have taken their eyes off the trade war a bit and begun to focus on the upcoming U.S. presidential election.

Why it matters: The outcome of November's election is now investors' top concern, according to the results of Bank of America Securities' latest global fund manager survey.

  • The trade war dropped to the No. 2 concern among respondents for the first time since May, while worries about a "bond bubble" popping rose to the No. 3 worry.

Watch this space: A number of recent analyses have found that the stock market is currently showing some irrational exuberance, but BofA's model shows "investors are bullish but not euphoric,” chief investment strategist Michael Hartnett said in a note.

  • The level of cash holdings has not yet reached the point that would signal excessive "greed," and overweight positions in stocks remain well below levels that signal concern.

Of note: Inflation expectations rose 14 percentage points from last month to net 56% of participants, the highest level since November 2018.

  • 19% of fund managers surveyed think the global economy will experience above-trend growth and below-trend inflation; 62% continue to expect below-trend growth and inflation.
  • Global corporate profit expectations jumped 14 percentage points from December, with a net 27% of respondents saying they expect profits to improve over the next 12 months, the highest level since March 2018.

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U.S. Surgeon General Jerome Adams looks on as President Donald Trump speaks during a press briefing with the White House Coronavirus Task Force. Photo: Drew Angerer/Getty Images.

As the Trump administration mulls its plan to battle the impact of COVID-19 on the U.S. economy, scant attention has been given to a major source of potential stimulus: reining in its tariffs on China.

Why it matters: U.S. tariffs increase costs for American companies that import Chinese goods, and with fewer customers making purchases as the COVID-19 outbreak slows demand, the trade war "is going to be a bigger drag on the economy," Chad P. Bown, a senior fellow at the Peterson Institute for International Economics (PIIE), tells Axios.chevron.

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New data from CivicScience show Americans remained calm about their retirement savings between late January and mid-March, despite significant losses in the stock market.

The intrigue: Bank of America Securities' Bull & Bear indicator has fallen to its lowest possible level, zero, indicating a strong buy signal.

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Illustration: Aïda Amer/Axios

In just a matter of weeks, top economists and investment bank analysts have gone from expecting the coronavirus outbreak to have minimal impact on the U.S. economy to warning that an outright recession may be on the horizon.

What's happening: The spread of confirmed coronavirus cases in Europe, the Middle East and the U.S., and the speed at which they are being discovered has set the table for the outbreak to have a larger and much costlier impact.