Key Points
- Big investors are unusually cautious heading into the summer, fearing a repeat of the market sell-off in August last year.
- The main risks include a fragile Middle East ceasefire, volatile oil prices, and the threat of a trade war.
- A July 9th deadline for a U.S.-EU trade deal is a major source of anxiety.
- Oil prices have been swinging wildly, and any disruption could cause a major shock to the global economy.
Big investors are getting nervous. As they head into the typically quiet summer months, they are bracing for potential shocks that could rock the markets. The biggest worries are a fragile ceasefire in the Middle East, wild swings in oil prices, and the looming threat of a full-blown trade war.
Last August, a sudden sell-off caught many by surprise, and no one wants a repeat. Asset managers are now actively purchasing protection for their portfolios, such as options that will pay out if stock prices decline. Goldman Sachs recently advised its clients to take steps to protect against a potential sell-off.
A major source of anxiety is the fast-approaching July 9th deadline for a U.S.-EU trade deal. With little progress so far, there’s growing concern that President Trump could impose crippling tariffs on European goods. Despite this risk, world stocks have been hitting record highs, and Wall Street’s “fear gauge” is unusually calm. But some see this as the calm before the storm.
Another big worry is oil. The price of crude oil has been swinging wildly in June, making it one of the most volatile months for oil in 15 years. Any major disruption to oil supplies from the Middle East could send prices skyrocketing, which would be detrimental to the global economy.
Even the computer-driven trading funds that dominate the market are showing signs of tension. While their programs are still signaling “buy,” some human fund managers are overriding them and selling stocks to reduce risk. It all adds up to a summer where no one is relaxing. As one analyst put it, with so much uncertainty, “there’s going to be far fewer people on holiday this year.”
