USA TODAY International Edition
‘ Fear trade’ on Wall Street
Wall Street’s ‘ fear trade’ takes hold
Investors rush to shed risk; gold prices jump,
NEW WORK The flight- to- safety trade is back in vogue on Wall Street.
Investors are rushing to shed risk amid speculation the U. S. is nearing a military strike in Syria in reaction to the government using chemical weapons against its civilians. The “fear” trade, or “risk- off” trade, is being driven mostly by the Syria crisis, says David Kotok, chief investment officer at Cumberland Advisors. “This is a high- stakes game in a dangerous part of the world,” says Kotok.
Adds Jim Russell, senior equity strategist at U. S. Bank Wealth Management: “The Syria issue means geopolitical risk is out there and bears watching. Military- related crises tend to play out over days and weeks, so we would look for continued market volatility in the days ahead.”
While the broad Standard & Poor’s 500- stock index, deemed risky in times of great uncertainty, plunged 1.6% Tuesday and is down 4.6% from its Aug. 2 record close, assets perceived as a haven saw a sudden rash of cash flow their way. Consider:
U. S. bonds. Money is pouring back into the bellwether 10- year Treasury note. Its yield, which moves in the opposite direction of price, closed Tuesday at a two- week low of 2.71%, below the 2.92% intraday 2013 high hit Friday. The drop in yields follows a more than 1 percentage point rise since late May, when the Fed began to hint at easing up on its bond- buying stimulus program.
Gold. The precious metal finished up $ 27.60, or 2%, to $ 1,420.60 per ounce, its first close above $ 1,400 since June 2013. This is one of the most commonly used hideouts to
park cash when the world gets scary and financial markets are on edge. The thinking on Wall Street, Russell says, is that gold “holds its value” when the fear trade is in play.
Volatility index. A closely watched Wall Street “fear” gauge, which measures stock market volatility, spiked 12% Tuesday to its highest level since late June.
Crude oil jumped 2.9%, to about $ 109 a barrel. Whenever geopolitical risk involves the Middle East, supply fears drive the commodity higher.
“Risky assets are under pressure and safe- haven investments are outperforming,” Jose Wynne of Barclays told clients in a note.
Things could get worse. A wall of worry was already building on Wall Street as investors started to gauge how markets will be affected when the Fed starts pulling back its bondbuying stimulus program.
There are also growing fears about a protracted fight in Congress this fall over raising the U. S. debt limit. Early Tuesday, Treasury Secretary Jack Lew told CNBC the Obama administration would not negotiate on raising the U. S. borrowing limit, which could be tapped out by midOctober. Republicans want spending cuts in exchange for a debt- ceiling increase. A similar fight on Capitol Hill in 2011 caused a sharp sell- off.