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Dow Creeps Higher but Fearful Wall Street Money Managers Exit Stocks Fast

Last Updated September 23, 2020 12:47 PM
Ben Brown
Last Updated September 23, 2020 12:47 PM

By CCN.com: Dow Jones futures rose on Tuesday, but money managers on Wall Street aren’t convinced the stock market rally has longevity.

Billion-dollar investors are pulling money out of stocks and piling into cash, according to a survey by Bank of America Merrill Lynch . The investors, who manage $528 billion between them, are also cycling into defensive investments and treasury bonds.

It’s a sure sign that investors are building defensive portfolios in the face of trade war fears and weak economic data.

Dow creeps higher on hopes of Federal Reserve rate cut

As of 6.44 am ET Tuesday, Dow Jones Industrial Average (DJIA) futures  climbed 82 points higher (0.31 percent), implying a green open at the bell. The Dow is set to extend yesterday’s tentative gains, powered by hopes of the first US interest rate cut in 11 years.

Dow futures chartTuesday 18th June
Dow futures climbed higher on Tuesday, but are investors ignoring the warning signs from Wall Street? Source: Yahoo Finance

S&P 500 futures  followed suit, pushing 10 points higher (0.37 percent) to 2,902. The tech-heavy Nasdaq Composite futures  climbed 55 points (0.73 percent) to 7,589. 

Recession coming to shake the stock market?

The Bank of America survey revealed that money managers are closing positions in tech and banking stocks. Instead, they’re allocating portfolio funds to fixed income investments, utilities, and cash positions.

Bank of America strategist Michael Hartnett said this exodus of Wall Street money from stocks is a recession warning sign. It echos recent recession warnings from JP Morgan and Morgan Stanley .

“Fund manager survey allocation is implying recessionary conditions.”

Cash allocations have spiked the most since 2011, when the market plagued by the debt ceiling crisis. Meanwhile, the unwinding of stocks is the second-largest drop on record.

Dow at risk from trade war and weak economic data

Unsurprisingly, the money managers cited the ongoing Sino-American trade war for their defensive plays. More than half say that Trump and Xi JinPing’s tit-for-tat approach is the biggest threat to stock market performance.

Global growth is also expected to slump, with central banks increasingly turning to stimulus measures .

As CCN.com reported yesterday, the US Federal Reserve is preparing to slash the base rate for the first time in 11 years. While investors have cheered the move, it’s a broad signal that the economy needs support.

Time to sell Dow stocks?

If money managers pull out of stocks en masse, it will likely trigger a pullback in the Dow and S&P 500. However, defensive plays like utilities and staples should provide some support for the stock market.

The Dow has pushed 5 percent higher in June after a poor performance in May, which saw the flagship index post its first monthly loss of the year.

For now, the market is entirely focused on the Federal Reserve and the two-day Federal Open Market Committee (FOMC) meeting .

Click here for a real-time Dow chart.