The major stock indexes swooned to nine-month low Friday on fears that the US recovery is losing momentum.
The Dow Jones Industrial Average fell for the seventh trading day in a row, its longest losing streak since October 2008, when the stock market was reeling from the Lehman Brothers bankruptcy. At 9686, the Dow now stands at its lowest level since Oct. 5, 2009, and has lost 13.5 percent of its value in just over two months.
The broader Standard & Poor's 500 index has lost 16 percent since it's peak in April. The Nasdaq is edging closer to bear-market territory, falling 17 percent in the same period.
What's wrong with investors? The easy answer is that they've lost their appetite for risk and risk assets. The more nuanced answer is that the US recovery story isn't unfolding as expected, causing investors to recalibrate.
For professional money managers, that recalibration involves factors like Europe's debt crisis, the implications of a slowdown in the West for still-booming economies, especially China, and fears of a double-dip recession in the US. The tepid rise in US employment in June, announced Friday, further depressed sentiment.
Professional money managers are "on heightened alert for the downside of risk," according to recent survey by Russell Investments, a global financial services firm based in Tacoma, Wash. Although nearly half those surveyed believe the market to be undervalued, the direction of the world economy is harder to discern now, causing managers to pull back from risk, at least in the short-term, says Stephen Wood, Russell's chief market strategist.
Individual investors are also deemphasizing risk.
"There's definitely been a shift and I would say it's in people wanting to move toward safety and security about their money," says Greg Oberland, executive vice president at Northwestern Mutual. The Milwaukee-based insurance company surveyed more than 1,000 individual investors in March and April and found that 75 percent preferred financial products that are safe, steady, and secure over aggressive, high-growth alternatives. A similar proportion said they had adjusted their time frames, calculating that it would now take longer to achieve their financial goals.
These attitudes could change. For professional managers, they could flip in an instant; for individuals, over a couple of years if the stock market starts to make solid gains.
For the moment, however, both are sitting on the sidelines.