When investors rush into the arms of so-called safe-haven investments — such as U.S. government bonds or cash — it’s a sign of risk-aversion. That’s what’s been happening in the recent selloff. But the fear trade may be reversing.
Money that was pouring into U.S. Treasuries as fear spiked, is now rushing out as the stock market shows signs of stabilization. A Wall Street “fear gauge” is also heading back down after fear doubled since the end of September and to its highest level in three years. And crude oil prices, which had plunged more than 20% before bottoming out around $80 earlier this week, has suddenly found a bid as well.
Stocks, of course, are the big winners as confidence returns. The Dow Jones industrial average is up about 220 points to 16,337 in early trading Friday. The fact that all of these so-called “fear trades” are reversing suggests market participants have a less-gloomy outlook and less fear that growth slowdowns in Europe and China will weigh heavily on the U.S.
Much of the newfound optimism can be tied to comments from a Federal Reserve official yesterday that suggested the U.S. central bank should reconsider ending its market-friendly bond-buying program later this month. A slew of upbeat headlines Friday morning, such as a big earnings beat by Wall Street bank Morgan Stanley, up $1.07, or 3.3%, to $33.60, and better-than-expected readings on September housing starts and October consumer confidence — now at a seven-year high — has eased fears that the U.S. economy is will suffer a major disruption due to troubles abroad. Investors are also coming to grips with the Ebola crisis.