Is the suddenly volatile stock market signaling another recession? A majority of financial advisers don't think so, but a significant number are of the belief that a second recession could be around the corner.
With major stock market indexes dropping nearly 5% today alone — and roughly 10% over the last nine days – 41% of 1,321 advisers responding to an
InvestmentNews survey today indicated that another recession is indeed likely.
(Weigh in and give us your thoughts.) Fifty-nine percent of advisers did not think that another recession is imminent.
With recent reports revealing that economic growth has stalled and job growth remains stunted — in addition to the increased debt pressures confronting countries in the eurozone — world markets have plunged.
The Dow Jones Industrial Average, for one, is firmly in correction territory after dropping more than 10%, erasing its year-to-date gains.
Questions about U.S. economic growth, which have persisted all year, are now front-and-center and appear to be factoring into many investors' views of the market.
"What was debatable a few months ago is unquestionable today, and that is we are in the midst of a decelerating economic growth environment,” said Matthew Rubin, director of investment strategy at Neuberger Berman Group LLC, which manages nearly $200 billion in global assets. “These economic downturns are typically measured in quarters, not weeks, and investors seem to be accepting that and, at some level, are pricing in a probability of another recession.''
Financial advisers were divided on the direction of the markets, according to the
InvestmentNews survey.
As to where they thought the S&P 500 would be trading at the close of 2011 — it was at 1,200.07 at the close of markets today — two-thirds of respondents believed it would be trading above 1200 at year-end.
Nearly 10% of advisers polled by
InvestmentNews today believed the index would end the year below 1000, while 5% expect it would be trading above 1400 at year-end.
“The mood right now is gloomy,” said Mike Ryan, chief investment strategist at UBS Wealth Management Americas. His firm oversees $774 billion. “The burden of proof is for better data that show the economy is not falling into recession. Tomorrow's payroll report is crucial. If we see another disappointment, the stock market will have significant downside from here.”
Bank of New York Mellon Corp., the world's largest custody bank, said it will charge clients a 13 basis point fee for “extraordinarily high” cash deposits.
“We have seen a growing level of deposits on our balance sheet from clients seeking a safe haven in light of the global interest rate and credit environment,” the company said today in an e-mailed statement.
Today's slide in the S&P 500 drove the cost of using options to insure against further declines up the most in almost five months. The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped 30 percent the highest intraday level since March 16.
The 9.3 percent rout since July 22 dragged the S&P 500's valuation to 13.4 times reported earnings, the cheapest level since April 2009, a month after the bull market began, according to data compiled by Bloomberg.
Excerpts from Bloomberg were included in this report
