Big-money investors have a new worry top of mind in 2020.
Continue Reading Below
The outcome of the November election is the new no. 1 tail risk, according to Bank of America’s Global Fund Manager Survey for January. It’s the first time since May 2019 that the U.S.-China trade war wasn’t the top concern.
The trade fracas didn't fall far, though. About 22 percent of survey participants still say it's their biggest concern, placing it second, while 20 percent are worried by the possible collapse of a bubble in the bond market, according to Michael Hartnett, chief investment strategist at Bank of America.
The numbers come from the Charlotte-based lender's survey of 202 participants, who control $603 billion in assets, from Jan. 9 to Jan. 16, reflecting worry that political developments might hinder a strong start to the year for U.S. equity markets.
The S&P 500 gained 3 percent this year through Friday, benefiting from developments such as President Trump's signing of a partial deal with China, de-escalating a nearly two-year trade dispute, and Senate ratification of the United States-Mexico-Canada Agreement, which overhauls the Clinton-era North American Free Trade Agreement.
Typically, the first half of an election year has “tended to be flat for U.S. equity prices,” according to the Wells Fargo Investment Institute. Markets in the second half of the year typically move depending on which candidate is expected to win, which helps explain rising concern among big-money investors about an unexpected victor.
Just weeks before the Iowa caucus, there is no clear frontrunner in the race to secure the Democratic nomination, driving speculation that the party may have its first brokered convention since 1952.
The uncertainty could be a thorn in the side of investors as it leaves open the possibility of a more liberal candidate, such as Sen. Bernie Sanders, I-Vt, or Sen. Elizabeth Warren, D-Mass., securing the nomination.
Warren, an outspoken critic of U.S banks, has proposed breaking up American conglomerates such as Facebook, and both she and Sanders have backed wealth taxes to pay for social programs such as free college tuition.
Consequently, several billionaires, including bond fund manager Jeffrey Gundlach and hedge fund manager Leon Cooperman, have expressed concerns that a victory by Warren or Sanders would undermine the stock market. However, with shares at all-time highs, it appears the markets aren’t yet concerned about that happening.
“If the likelihood of a Bernie or Warren candidacy increases meaningfully, I think the impact on the market definitely would be substantial,” Invesco former vice chair of investments Krishna Memani told FOX Business’ Dagan McDowell on “Mornings with Maria” on Monday.