Wall Street has caught a case of the jitters.
Employers are hiring at their fastest pace in 21/2 years, the economy is expected to expand by a robust 3.5 percent this quarter and corporate earnings have hit a record. But you wouldn’t know it from the way many investors are acting.
They’re pouring money into U.S. Treasury bonds, considered the world’s safest asset. They’re loading up on dull but reliable utility stocks. They’re dumping holdings that would get hurt most from a stalled recovery, such as stocks of retailers and risky small companies.
Just a few months ago, investors thought the economy would grow rapidly this year. Now they’re not so sure and shifting money around in surprising ways, a sign that confidence remains fragile five years into a recovery.
“It doesn’t take much — an itsy-bitsy sell-off — and suddenly everyone is conservative,” says Jim Paulsen, chief investment strategist at Wells Capital Management. “We’ve climbed a wall of worry throughout this recovery, and we’re still doing that.”
Many experts had expected a recovery that finally felt like one this year. More companies would be hiring, consumers would spend more, and businesses that had slashed expenses to generate profits now would earn them by selling more. Investors would unload safe government bonds, forcing their prices down and their yields, which move in the opposite direction, up.
But the year is unfolding somewhat off script.
Small-company stocks that often are good bets in an accelerating economy are teetering on a “correction,” Wall Street parlance for a drop of 10 percent from a high. Many Internet stocks, the ultimate optimistic bet, passed that level weeks ago — and still are dropping. Meanwhile, utilities — unsexy but stable — have soared 10 percent so far this year, more than double the gain of any of the other nine sectors in the Standard & Poor’s 500 index.
There’s plenty of reason for caution — a stalled housing recovery, for instance, disappointing first-quarter economic growth in the U.S. and Europe, a possible civil war in Ukraine and a cooling Chinese economy. The flood of money into U.S. government bonds may reflect frustration as much as fear.