Home' Trinidad and Tobago Guardian : May 18th 2014 Contents Wall Street has caught
a case of the
hiring at their fastest
pace in 2 ½ years,
the economy is
expected to expand by a robust 3.5 per cent
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 US 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, like
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 con-
fidence remains fragile five years into a recov-
"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 would now earn them by
selling more. Investors would unload safe gov-
ernment bonds, forcing their prices down and
their yields, which move in the opposite direc-
But the year is unfolding somewhat off
Small-company stocks that are often good
bets in an accelerating economy are teetering
on a "correction," Wall Street parlance for a
drop of 10 per cent from a high. Many Internet
stocks, the ultimate optimistic bet, passed that
level weeks ago---and are still dropping. Mean-
while, utilities---unsexy, but stable---have soared
10 per cent so far this year, more than double
the gain of any of the other nine sectors in
the Standard & Poor s 500 index.
Most surprising is the new ardour for US
government bonds. Instead of fleeing them as
they had late last year, investors can t seem
to buy enough. On Friday, the yield on US
Treasury notes maturing in 10 years stood at
2.52 per cent, half a percentage point lower
that it was just five months. That is a big
move for bonds.
There s plenty of reason for caution; a stalled
housing recovery, for instance, disappointing
first-quarter economic growth in the US and
Europe, a possible civil war in Ukraine and a
cooling Chinese economy. The flood of money
into US government bonds may reflect frus-
tration as much as fear. Investors seeking
income may be turning to the US because
they re unhappy with the paltry payouts on
bonds of other rich countries, such as those
of Japan and Germany, where yields are even
But something not as easy to pinpoint, more
ephemeral, may also be prompting investors
to play it safer: Many Americans, still haunted
by the financial crisis, don t trust the recov-
"They re not willing to take risks," says Matt
Lloyd, chief investment strategist of Advisors
Asset Management. He points to bankers still
too scared to lend, CEOs playing it safe by
using cash to buy back stocks instead of
expanding operations, and consumers not
"buying that fifth TV."
Jeff Klingelhofer, an associate bond portfolio
manager at Thornburg Investment Manage-
ment, says investors are second-guessing the
health of the economy.
"We ve seen these fits and starts of positive
economic (news) only to see a few months
later disappointing data," he says. So investors
are taking a wait-and-see approach.
Many economists suspect the US economy
shrank in the first three months of the year,
but attribute that to harsh winter weather.
They are confident of a big expansion in the
A raft of recent reports suggests they might
be right. Employers added 288,000 jobs in
April, the most in 2 ½ years. Americans have
stepped up their spending. And on Thursday,
the Labor Department reported that the con-
sumer price index rose a healthy 2.0 per cent
in April compared with a year earlier.
Higher inflation can be a sign of economic
strength because it usually reflects more spend-
ing by shoppers and businesses. But it also is
bad for bond investors. The money returned
to them when their bond matures will buy
But instead of selling US Treasuries, investors
bought on the inflation news, pushing the 10-
year yield to its lowest in 10 months.
This year s nervousness follows an exuberant
2013, when the S&P 500-stock index surged
nearly 30 per cent, not including dividends.
By some measures, that has left stocks at dan-
gerous highs compared to earnings, another
reason for today s skittishness.
This year, the S&P 500 has hit ten new
highs, two this week alone. But they have been
on tiny gains, and the index itself is only 1.6
per cent higher than it was at the start of the
If this is the top of the market, it feels dif-
ferent from previous peaks.
In 2000, the stock market s surge was
accompanied by books such as "Dow 36,000"
which offered tips to profit from a continued
climb. The run-up in stocks that ended in
2007 was marked by heavy borrowing by con-
sumers, investors and businesses, with little
inkling of the danger ahead.
Today, the mood is sober.
"We don t sense any excitement," says Jim
Russell, a regional investment director at US
Bank. Instead, he says investors are filled with
worry "waiting for the next shoe to drop."
AP Business Writers
MAY 18• 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCK | SBG11
HONG KONG---Indian stocks jumped Friday
as preliminary results from national elections
indicated the opposition had won a landslide
victory. Other global markets were subdued at
the end of a fairly volatile week.
Indian stocks have been rising since voting in
the world's most populous democracy got un-
derway six weeks ago. Investors have been an-
ticipating a victory for the Bharatiya Janata
Party and its allies.
Narendra Modi, the party's candidate for
prime minister, has campaigned on a pledge to
revive economic growth amid widespread dis-
satisfaction with the ruling Congress party
after a decade in power.
The Sensex stock index in Mumbai surged
6.1 per cent at one stage before paring gains
to close 0.9 per cent higher.
"The BJP victory is likely to herald a revival
in India's economic fortunes, with the potential
to boost Indian GDP growth back over 8 per
cent by 2017," said Rajiv Biswas, Asia Pacific
Chief Economist at IHS Global Insight.
Elsewhere, the mood was far more subdued
as the week closed out with a whimper follow-
ing broad-based losses on Thursday in the
wake of soft economic data out of Europe and
In Europe, the FTSE 100 index of leading
British shares closed 0.2 per cent higher at
6,855.81 while Germany's DAX fell 0.3 per
cent to 9,629.10. The CAC-40 in France
ended 0.3 per cent higher at 4,456.28.
In the US, the Dow Jones industrial aver-
age was flat at 16,450 while the broader
S&P 500 index rose 0.1 per cent to 1,872.
"The week is heading towards a quiet finish
in the US, which was almost inevitable follow-
ing the heavy selling of the preceding two
days," said Chris Beauchamp, market analyst
Earlier in Asia, Tokyo's Nikkei 225 stock
shed 1.4 per cent to close at 14,096.59 while
South Korea's Kospi rose 0.2 per cent to
2,013.44. Hong Kong's Hang Seng lost 0.1 per
cent to 22,712.91.
The mood was similarly subdued in currency
markets, with the euro down 0.1 per cent at
$1.3706 and the dollar flat at 101.50 yen.
The Dow Jones industrial average
rose 44.50 points, or 0.3 per cent, to
The Standard & Poor's 500 index
rose 7.01 points, or 0.4 per cent, to
The Nasdaq composite index rose
21.30 points, or 0.5 per cent, to
For the week:
The Dow fell 92.03 points, or 0.6
The S&P 500 index slipped 0.62 of
a point, or 0.03 per cent.
The Nasdaq composite rose 18.72
points, or 0.5 per cent.
For the year:
The Dow is down 85.35 points, or
0.5 per cent.
The S&P 500 index is up 29.50
points, or 1.6 per cent.
The Nasdaq is down 86 points, or
2.1 per cent.
Worry settles over Wall
Street as stocks stall
Trader Ryan Falvey, left, works on the floor of the
New York Stock Exchange on Friday, May 16. The
stock market is little changed in early trading
following sharp declines the previous day. AP
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