Institutional Investors Shift to Defense Mode! Hidden Risks Behind Market Highs?

The summer financial markets are staging a symphony of ice and fire. Retail traders are fueling a resurgence of meme stock mania, cryptocurrencies are regaining momentum amid expectations of Trump-era policies, and U.S. stocks are charging ahead, repeatedly hitting record highs. Yet, behind this seemingly euphoric market scene, deep-pocketed institutional investors are quietly pivoting, fortifying their defenses. A July 29 survey by market research firm CoreData Research has unveiled this paradox—while optimism appears dominant, nearly half of institutional investors are bracing for a potential storm.

The survey, covering 132 institutional investors and 22 institutional advisors, reveals that 49% of respondents believe the market is underestimating the potential impact of Trump’s tariff policies. Further data shows that around 80% of institutional investors have adjusted their strategies due to trade policy uncertainty, either tactically shifting to short-term defensive positions or strategically restructuring long-term allocations. This cautious sentiment is particularly pronounced as the Trump administration secures trade agreements with Japan and the EU.

CoreData Research found that 69% of large investors fear trade tensions could trigger a global capital flight from U.S. Treasuries and the dollar, while 64% explicitly warn that tariffs may drive structural inflation and slow economic growth.

"Behind the façade of institutional optimism lies deep anxiety about permanent changes to global trade dynamics," says Michael Morley, U.S. head of CoreData Research, cutting to the heart of the matter.

In his view, while Trump’s early tariffs have yet to inflict significant economic damage, institutions are more concerned about their long-term toxicity. "They’re responding to risks with greater flexibility than in past cycles," Morley notes. This "flexible reaction function" manifests in 41% of institutions moving toward value and defensive stocks, 40% increasing cash holdings, and only 20% slightly raising exposure to commodities.

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