“Tail risk” sparks biggest exodus from U.S. stock market on record

Wall Street has given President Trump its biggest vote of disapproval yet by dumping U.S. stocks at the fastest pace on record.

A recent Bank of America survey of fund managers revealed a massive 40-percentage point reduction in long positions on U.S. stocks — the largest in the survey’s history.

Long positions on U.S. stocks crashed to negative 6% from a positive 35% the previous month.

The survey, which took place between March 7-13, had 171 participants sitting on $426 billion in assets under management. “Peak U.S. exceptionalism is reflected in record rotation out of US stocks,” wrote Bank of America strategist Michael Hartnett.

Investors are rotating out of U.S. stocks thanks to Trump’s sledgehammer approach to tariff policy, with some analysts even questioning whether the president is purposely orchestrating a crash to force the Fed to cut interest rates.

Because of this, investors think a recession is the biggest “tail risk” facing the economy and market, the survey said.

While Trump may eventually succeed in forcing the Fed’s hand, investors aren’t going to sit idly by and watch their losses snowball.

The Bank of America survey showed that many investors decided to dump their American stocks for cash, with cash allocations rising at the fastest pace since December 2021.

Others opted for European stocks, whose allocations reached their highest level in almost four years.

Just how big of a “tail risk”?

The problem with recessions is there’s no foolproof way to know when the economy is in one.

Even during the Global Financial Crisis, experts couldn’t confirm whether the U.S. was in a recession until it was almost over. Although the streak of negative growth started in 2007, “We didn’t know we were in a recession until 2009,” economist Peter Schiff famously quipped.

The Atlanta Fed GDP Tracker has painted a grim picture of the U.S. economy, forecasting a 1.8% contraction in the first quarter. If that forecast holds, it would mark the worst quarter since Covid.

A recent survey of corporate CFOs conducted by CNBC revealed that 60% of respondents expect a recession in the second half of 2025. One CFO said that the start of Trump 2.0 was “too chaotic for business to navigate effectively,”

S&P Global stopped short of forecasting an all-out recession, but warned of a “likely downshift in GDP growth” due to Trump’s “shifting policy mix.”

The Trump administration has largely downplayed the recession risk but said repeatedly that it’s willing to sacrifice short-term pain for long-term gain.

Trump’s Commerce Secretary, Howard Lutnick, even gave a timeline for when all that pain will finally bear fruit. “You’ll feel the power of Trump’s economy by Q4,” he said.