Professional investors spent most of 2019 worrying about the U.S.-China trade war. As a new year has dawned, so has the focus of most concern.

The first Bank of America Global Research fund manager survey of 2020 shows the highest risk is now the looming presidential election, according to the 249 panelists surveyed, 29% of whom consider politics the biggest potentially disruptive issue in the year ahead. The survey is widely followed on Wall Street.

Since June 2018, the U.S-China tariff battle has been most prominent for the market pros. However, with the two sides agreeing to the first phase of a trade agreement, and negotiations on the next stage expected to begin soon, concern has abated on Wall Street.

“Investors are bullish but not euphoric,” Michael Hartnett, BofA’s chief investment strategist, said in a statement. The survey also showed that cash levels have held steady while allocations to global stocks inched higher and sentiment about the global economy has improved to where 36% now expect higher growth over the next year, the best level since February 2018.

However, investors remain nervous about the election, which will pit a yet-to-be determined Democratic candidate against President Donald Trump, who has overseen a market that has surged 63% since his election as measured by the Dow Jones Industrial Average.

Stock market has prospered

Trump was at the World Economic Forum in Davos on Tuesday and gave a speech that touted the economy’s performance under his watch.

His top economic advisor, Larry Kudlow, spoke later to CNBC on the importance of keeping the current approach in place. Trump has used a combination of tax cuts and less regulation coupled with a tough stance on trade as key points in his agenda.

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Trump’s Democratic opponents argue that wealth inequality continues to persist. They promise aggressive government programs such as universal health care to even out income distribution.

Kudlow, though, said that inequality has been decreasing.

“As long as these policies remain in place, that’s a very important story,” Kudlow, the director of the National Economic Council, said during a “Squawk Box” interview. “I think a lot of the stock market bet this year is going to be about that subject when the campaign heats up.”

The market generally does well in election years. The S&P 500 has risen 85.7% of the time in the fourth year of a presidential cycle, with the average gain 11.7%, according to BofA.

Investors see inflation rising this year, with a net 56% of respondents to the BofA survey expecting higher prices in the next 12 months. They also expect improving corporate profits at a time when aggregate earnings are on track to fall in four consecutive quarters. A net 27% expect to see a better picture, the highest amount of optimism since March 2018.



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