By Jonnelle Marte
While stocks rose on Friday, sending the Dow Jones Industrial Average into positive territory for the year, many investors were still in the red — and seeking new answers from financial advisers.
The Dow finished up 166 points, up 5% for the week and marking three straight weeks of gains — the index’s longest weekly winning streak in six months. Markets were boosted late in the week thanks to better-than-expected retail sales and an impressive earnings report from Google. And while historically, October has been one of the bumpiest months of the year — it claims eight of the 15 biggest single-day drops in the Dow’s history, but also five of its seven best-performing days — so far this month it’s up 6.7%.
The Dow getting back into the black is a mini-milestone for many investors, but stocks are still down more than 6% from July — before the recent market turbulence. And some financial advisers say many of their clients are still trying to recover their summer losses. Since August, the market has closed up or down by 200 points a remarkable 19 times. Many advisers and investors were caught on the wrong side of those moves – moving to cash as the market rose, or buying shares before a major drop. “It’s a more damaging environment than what just the Dow might be indicating,” says T. Doug Dale, a financial adviser with Security Ballew Wealth Management in Jackson, Miss.
To be sure, some advisers say their clients are back in the black, too — if barely, and not thanks to stocks. Dale says the long-term Treasury bonds he bought and sold for clients during the third quarter helped boost investor portfolios by about 5%, which made up for the 4% dive in their stock portfolios.
Other advisers see the current rally as a sign of things to come. Frank Fantozzi, president of Planned Financial Services, a wealth management firm in Cleveland, says he’s been increasing his client’s exposure to stocks by 15%. “My feeling is the equity side of things will be positive,” says Fantozzi, who says returns for his clients’ portfolios are flat for the year.
Indeed, if history’s any guide the year could finish on a high note, say advisers. Called “the Santa Claus” effect, stocks historically rise in the fourth quarter — especially following a down third quarter. In years where the Standard & Poor’s 500 index has dropped by 10% or more in the third quarter – as it did this year with a 12% drop—the index has gained an average 7.2% in the fourth quarter, according to Standard & Poor’s Equity Research.
But other advisers are playing defense. Financial adviser Mathew Tuttle moved his clients out of equities at the beginning of August, and into cash and long-term Treasury bonds. He benefited when long term Treasurys rallied in September but has been losing money as Treasury yields have come back up this month. He has also missed out this month’s stock market gains. “We’re going to take risk off the table in a period like this,” says Tuttle, adding that he doesn’t believe the European debt crisis is close to being resolved. “We’ve taken volatility off the table.”