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Wall Street is riding a wave of record-breaking highs this summer, fueled by a resurgence in retail trading, a bounce in crypto linked to favorable Trump-era policy signals, and overall bullish momentum that has pushed major indices into a fresh bull rally.
Yet behind the scenes, institutional investors are growing increasingly cautious, quietly preparing for what they believe could be a painful reckoning ahead.
A new July 29 survey by CoreData Research reveals that while markets continue to surge, many big investors are taking defensive steps in anticipation of economic disruptions tied to President Donald Trump’s evolving tariff agenda.
A Growing Divide Between Market Optimism and Institutional Caution
CoreData polled 132 institutional investors and 22 institutional consultants, uncovering a sharp divergence in sentiment between retail euphoria and institutional prudence.
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49% of institutional respondents believe markets are underestimating the risks associated with Trump's trade and tariff policies.
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69% say they're concerned that current trade policies could lead to a global retreat from US treasuries and the dollar.
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64% fear the tariffs will contribute to persistent inflation and slower economic growth a concern echoed by leading economists in recent months.
Despite some recent trade agreements between the US and countries like Japan and the European Union, professional money managers aren't ready to celebrate. Instead, they see a global trade environment that has already fundamentally shifted, requiring a new approach to portfolio construction.
Defensive Moves Are Underway
The CoreData survey highlights a clear trend: institutional investors are no longer just watching the macro risks unfold they're actively adjusting their portfolios in response.
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80% of respondents said they are making strategic or tactical portfolio shifts in response to market volatility tied to trade policy.
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41% reported a rotation into value stocks and defensive sectors.
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40% said they were boosting cash allocations.
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Only 20% indicated they were increasing exposure to commodities, a more traditional inflation hedge.
According to Michael Morley, head of CoreData U.S., these adjustments mark a more agile and risk-aware mindset among institutions compared to past cycles.
“The research suggests that any optimism institutional investors have about the world's most important trade negotiations belies a sense that global trade already has irrevocably changed,” Morley said. “Portfolio construction must adapt to this new reality.”
Tariff Effects: Mild So Far, but the Outlook Remains Cautious
Despite Trump’s assertion that his tariff policies benefit the U.S. economy, the long-term impact remains a significant point of concern among institutional players.
Morley acknowledged that, in the short term, the tariffs have not yet delivered a serious blow to the economy. But institutional investors are focused less on short-term reactions and more on the cumulative, long-term effects of ongoing protectionist policies.
Their response? De-risk portfolios and increase resilience amid what they see as a wider range of economic outcomes than markets are currently pricing in.
While the stock market appears unfazed by tariffs and other geopolitical risks, institutional investors are not convinced that the rally is sustainable. With nearly half of surveyed professionals warning that markets are too complacent, and a large majority making strategic adjustments, it’s clear that a more defensive, inflation-conscious approach is quietly taking hold at the top of the investment chain.
In other words: The party may be in full swing, but the pros are already heading for the exits just in case.
