As uncertainty intensifies, money moves to cash

Investors are running for cover ahead of what is expected to be a hectic fall. Jason Kephart explains.
AUG 25, 2013
Investors are running for cover ahead of what is expected to be a hectic fall. More than $30 billion has been pulled out of bond funds this month, and last week's outflows from stock funds were the biggest since 2008. “There's a lot of future anxiety,” said Greg Sarian, managing director at Sarian Group, a private wealth team at HighTower Advisors LLC. The Federal Reserve is widely expected to announce its plan to slow down its asset-purchasing program, or quantitative easing, at its September meeting. There is still a lot of uncertainty over what shape the tapering could take or when it could actually begin.

Exercising caution

Add that to concerns over slumping emerging markets, rising interest rates and the upcoming debt ceiling debate, and a strategy of exercising some caution begins to win adherents, experts said. “People are being a little more cautious going into the fall, and that probably makes sense,” said Russ Koesterich, chief investment officer at BlackRock Inc. Mr. Sarian started talking to his clients about moving into cash late last month. “When the market hit new highs in July, we thought it was time to pick the fruit while it's ripe,” he said. “It's been a good year. Clients are much more aware of protecting profits than ever before.” Now Mr. Sarian is looking to lock in the S&P 500's 15% year-to-date return and provide cash for clients' short-term liquidity needs. The anxiety over the upcoming events has already translated to spikes in stock market volatility and rates. The S&P 500 is down almost 3% this month, and rates on the 10-year Treasury have risen to their highest level since 2011. Nothing in the short term is likely to turn those trends around, strategists say. “There is a dearth of catalysts right now,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates. “The fact of the matter is, the market's internal energy is gone near term.” Scott Wren, senior equity strategist at Wells Fargo Advisors LLC, agrees that there isn't a lot to get excited about for stocks over the next few months. “We'd argue the gains are in for the year,” he said. Mr. Saut said that the current pullback could run as much as 10% in total, but he doesn't think the Fed's tapering, if it is announced next month, will cause any kind of bear market. “I personally think it's going to be a non-event,” he said. “Usually, when everyone's asking the same question it's the wrong question.” Mr. Wren is also still bullish about the long term. He has a target of 1,850 for the S&P 500 at the end of 2014. It closed at 1,656 last Thursday. With that in mind, Mr. Wren is using this pullback as an opportunity to move clients into stocks. “We have lots of clients with a lot of cash who have missed a lot of this run,” Mr. Wren said. “We'd love to see the market pull back a little more, and then we'll be in there pounding the table.” Even though Mr. Sarian is talking to clients about cash, he sees lots of positives in the big picture. “We're really encouraging clients to not let the short-term volatility affect their long-term planning,” he said. “The economic data is gradually getting better,” Mr. Sarian said.

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