The unexpected surge in US assets following the trade agreement between Washington and Beijing has taken many large investors by surprise, conflicting with their bearish outlook on the dollar and Wall Street stocks.
After the US and China decided to reduce tariffs for a minimum of 90 days, the S&P 500 has surged by 3.3 percent this week, completely reversing its losses for the year. The dollar also saw an increase, while US government bond prices fell as traders moved away from traditional safe havens.
This sudden influx of capital into stocks has negatively impacted major asset managers and institutional investors who had maintained a cautious stance on US assets due to concerns about a potential economic slowdown and uncertainties surrounding US policies.
According to Robert Tipp, head of global bonds at PGIM Fixed Income, “The market was caught off guard. As the trade agreements started to seem more realistic, despite the existence of tariffs, a reassessment occurred, leading to significant position adjustments.”
Furthermore, the recent rally in the Nasdaq Composite, which has surged nearly 30 percent from recent lows, indicates the significant shift in market sentiment following President Trump’s tariff announcement on “liberation day.”
As per the CFTC data, asset managers held their largest-ever long position in 10-year Treasury futures, signaling a belief in lower yields and a potential recession later in the year. This contrasts with the recent surge in stock prices driven by retail investors during regular trading hours.
Despite the positive market sentiment, some asset managers caution that the shift towards trade optimism may have gone too far. Concerns remain about the potential economic impact of the trade disruptions and the sustainability of the current market rally.
Andrew Pease, chief investment strategist at Russell Investments, warns, “We should remain cautious and not overlook the damage caused by policy uncertainties on consumer and business confidence before becoming overly optimistic.”
Looking ahead, experts like Athanasios Vamvakidis from Bank of America and Dominic Schnider from UBS’s wealth management arm anticipate potential weaknesses in the dollar as the full extent of the trade war damage becomes evident.
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