August 29, 2013 in Business

Caution overtaking Wall Street

Ken Sweet Associated Press
 
Associated Press photo

Trader Gregory Rowe, left, works on the floor of the New York Stock Exchange on Tuesday.
(Full-size photo)

Your 401(k)

Many market observers recommend that for long-term buy-and-hold investors – the average American with a 401(k) – it’s best not to follow professional investors to the sidelines. Lower stock prices could lead to buying opportunities.

NEW YORK – Wall Street’s big investors are in wait-and-see mode.

There’s been plenty to give them pause this week: The stock market is down and oil is surging as the Syrian civil war escalates. Then there’s the lingering worry that the Federal Reserve will end its stimulus too soon.

The next few weeks promise more big headlines. The government releases its August jobs report and Washington ramps up for a debate on the debt ceiling. Syria is just the latest ingredient in an already volatile mix.

“There have been problems developing in the market for a while now,” said Tobias Levkovich, Citigroup’s chief U.S. equity strategist.

The Dow Jones industrial average edged up 48.38 points, or 0.3 percent, to close at 14,824.51 on Wednesday. The Standard & Poor’s 500 index gained 4.48 points, or 0.3 percent, to 1,634.96. The Nasdaq composite rose 14.83 points, or 0.4 percent, to 3,593.35.

While the selling in stocks appears to have abated for the moment, the trend for the market has been down. The S&P 500 has lost 4.4 percent since reaching an all-time high on Aug. 2, while the Dow is down 5.3 percent.

With all that uncertainty, there are signs that Wall Street’s more active players – hedge funds, pension funds and mutual funds – are heading to the sidelines.

“The mentality among large investors is that there is a high potential to get caught” on the wrong side of the market, said Chris Hyzy, chief investment officer at U.S. Trust.

Growing geopolitical risk like in Syria is almost always damaging to investor confidence. Investors worry that a U.S.-led attack against Syria could draw the country into Syria’s civil war, or worse, fan a larger conflict in the region.

The next big piece of data investors will have to work through comes next week, when Wall Street gets the August jobs report. However, the report is likely to be overshadowed by continued speculation about the future of the Fed’s bond-buying program.

“The market is acting a lot like a patient sitting in a waiting room reading a magazine,” Hyzy said. “We don’t know how good or bad it is, all we know is that the prognosis will come over the next couple days and weeks.”

The Fed has been buying $85 billion in bonds a month since December in a move to keep interest rates low and the economy growing. It is widely expected that the Fed will announce a reduction in bond-buying at its next policy meeting, scheduled for Sept. 17-18.

But Syria – and the risk of Middle East conflict – has raised a new concern for the economy: higher oil prices. Crude oil is up nearly 5 percent this month, most of it coming in the last few days. Oil rose $1.09 to $110.10 a barrel on Wednesday. Costlier oil almost always translates into higher fuel expenses for businesses and consumers, weighing on consumer spending and the economy.

“When you add it all up – the problems in Libya, Egypt, Syria – you’re looking at 3 million barrels a day in potential production outages,” said Nick Koutsoftas, a commodities-focused portfolio manager at Cohen & Steers.

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