NEW YORK — 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, 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 confidence remains fragile five years into a recovery.
“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.
But the year is unfolding somewhat off script.
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 percent from a high. Many Internet stocks, the ultimate optimistic bet, passed that low weeks ago. Meanwhile, utilities — unsexy, but stable — have soared 10 percent 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 ardor for U.S. government bonds. Instead of fleeing them as they had late last year, investors can’t seem to buy enough. On Friday, the yield on U.S. Treasury notes maturing in 10 years stood at 2.52 percent, half a percentage point lower that it was just five months ago.
The flood of money into U.S. government bonds may reflect frustration as much as fear. Investors seeking income may be turning to the U.S. 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 lower.
But something not as easy to pinpoint may also be prompting investors to play it safer.
“They’re not willing to take risks,” says Matt Lloyd, chief investment strategist of Advisors Asset Management.
Many economists suspect the U.S. economy shrank in the first three months of the year, but attribute that to harsh winter weather. They are confident of a big expansion soon. Americans have stepped up their spending. And on Thursday, the Labor Department reported that the consumer price index rose a healthy 2 percent in April compared with a year earlier.
“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.”