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Associated Press
Traders working on the floor of the New York Stock Exchange see investors shifting their money around in surprising ways.

Worry settles over Wall Street

Wary on recovery, more investors opt for safe, solid route

– Wall Street has caught a case of the jitters.

Employers are hiring at their fastest pace in 2 1/2 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.

They’re 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,” said 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 government bonds, forcing their prices down and their yields – which move in the opposite direction – up.

But the year is unfolding somewhat off script.

On Friday, an index of small-company stocks that are often good bets in an accelerating economy was teetering on a “correction,” Wall Street parlance for a drop of 10 percent from a high.

And instead of selling government bonds, investors have bought so much, it has pushed down the yield on U.S. Treasury notes maturing in 10 years to 2.51 percent, half a percentage point lower in 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 U.S. and Europe; a possible civil war in Ukraine; and a cooling Chinese economy.

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 recovery.

“They’re not willing to take risks,” said 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.”

Investors are taking a wait-and-see approach, says Jeff Klingelhofer, an associate bond portfolio manager at Thornburg Investment Management.

“We’ve seen these fits and starts of positive economic (news), only to see, a few months later, disappointing data,” he said.