With the S&P 500 officially entering a bear market early Tuesday, investors were scrambling for guidance as the fourth quarter began.
The S&P 500 index has fallen more than 20% since spring, which included a dismal third quarter for stocks that saw the Dow Jones industrial average ending 12% lower on Sept. 30, at 10,913, compared to three months earlier. To underscore the volatility of the past few months, the three major indexes on Tuesday rallied at the close, with the S&P 500 jumping 24.52 points, or 2.23%, to end at 1,123.75.
Overall, though, nervous investors have been trimming positions in front of the fourth quarter after the equities market’s terrible September, while the dollar and U.S. Treasuries were beneficiaries of panic buying and credit spreads ballooned, wrote investment strategist Ben Warwick of Aspen Partners on Monday in a column for AdvisorOne.
“Although the European debt crisis, the slowdown in emerging markets and concerns of a double-dip recession are still in people’s minds, few clients I spoke to believe that the legislative or executive branches of the U.S. government either understand or can successfully manage the domestic economy,” Warwick said.
He advised advisors to keep a close watch on “the rebalancing button,” and recommended that they take advantage of the current dislocation between equity and fixed income markets.
October is notorious for being a rollercoaster stock market month, said Randy Warren, chief investment officer at Warren Financial Service, noting that financial advisors are wasting no time in battening down the hatches.
"Crises that plagued the markets throughout September have historically reached a crescendo in October and this year is no exception," said Warren in a statement. "We're shoring up protection for our portfolios and preparing for the worst."
Specifically, Warren’s firm is pulling client assets out of high beta exchange traded funds and mutual funds that don't perform in a highly correlated, volatile market. The European debt crisis continues to cast a dark shadow over investor outlook, he noted, and correlation is nearing an all-time high, with last week bringing the greatest decline in major U.S. equities since the financial crisis in October 2008.
J.P. Morgan Asset Management, meanwhile, has released a Q4 “Guide to the Markets” available for free in a 65-page PDF that uses a broad pool of data showing market and economic trends.
After a difficult and volatile summer for financial markets, the investment environment could best be described as one of extremes.
The quarterly guide addresses Q3’s investment environment, including the risk of a double-dip recession, dangers posed by federal debt and political polarization, the European debt crisis and the importance of emerging economies to global growth.