SANTA MONICA, Calif. (MarketWatch) — It can’t be said that the rich are immune to stock market volatility, mightily as they might try with risk-averse strategies and hedge funds.
Hedge funds sprang up, remember, to lessen risk and exposure to the volatile equity markets. And the wealthy have invested in hedge funds to the tune of more than $1 trillion over the past five years alone, according to Hennessee Group research.
The most recent investment trend among the wealthy, however, has been to pull out altogether.
The number of wealthy people “not investing,” according to the Spectrem Affluent and Millionaire indices, is at an all-time low.
While some millionaires are returning to the market “albeit cautiously,” according to Spectrem’s findings last month (so which haven’t taken into account the most recent extreme market events) they still have a much higher amount of money in cash than they do the markets.
The markets, of course, are confusing: One day they’re madly up, the next they are down.
MarketWatch reports that market sentiment, as measured by the Volatility Index, spiked to a five-year bearish extreme, suggesting an intermediate-term bottom may be in place. Extreme highs on the index are interpreted as a bullish signal, while extreme lows are considered a bearish indicator.
After clearing a two-week downtrend last week, the S&P 500 index struggled to break atop the May 2006 high. The Dow Jones Industrial Average and the Nasdaq are in similar measures of volatility, with the overall U.S. stock market in a primary downtrend.
Asian and European markets have been equally volatile. Oil futures have risen — and fallen. Gold futures have spiked — and dropped. And the dollar rallied for a minute — and then fell to new lows against the Japanese yen and the euro.
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