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Beware of Stocks' Rapid Rise: Wells Fargo Exec

Stocks in this article: WFC JPM

The Senate voted a second time on Wednesday to prevent a shutdown of the government with another temporary stopgap budget measure. But Congress is far from a consensus over a long-term plan for the country's staggering deficit. Recent rallies in Wisconsin over state budget cuts and union attack ads against politicians in other states, like New York and New Jersey, have exhibited the big divide over where to make cuts and how much debt taxpayers can handle.

The poll by Wells Fargo and Gallup showed that near-retirees are a lot more worried about their financial future than investors who are beneficiaries of generous pension plans from another era. Such plans have taxed the finances of manufacturers, airlines and automakers and are now blamed for capsizing state and local budgets.

As a result of high-profile budgetary disputes, as well as the low interest rate environment, there has been a sell-off in fixed income products. The drop has been particularly steep one for municipal bonds as prominent commentators, like analyst Meredith Whitney and JPMorgan Chase (JPM) CEO Jamie Dimon, sounded alarm bells about potential municipal defaults.

The Investment Company Institute said on Wednesday that investors have pulled $37.7 billion from the municipal bond market over the past four months, even as they poured $39.1 billion back into mutual funds overall. Stocks have been the biggest beneficiaries of the increase in investors' risk appetite, taking in $37.3 billion over that time.

Carroll said investors handled by Wells Fargo's wealth, brokerage and retirement division have been selling nonessential revenue bonds, as well as lower rated general obligation bonds. The amount of requests Wells Fargo has received from investors looking to sell their municipal bond holdings - known as the "bid requested list" - has doubled over the past 90 days.

"We have seen, in the last 90 days, much more attention paid to the municipal market.... because of the significant attention to the state of municipalities' credit," said Carroll.

Still, Carroll noted that investor confidence is on the mend - albeit far below the pre-crisis bull market. In February, the Wells Fargo/Gallup Investor and Retirement Optimism Index came in at 42, much higher than its all-time low of negative 64 in February 2009. Gallup began the survey in October 1996, but recently partnered with Wells Fargo to release the findings on a quarterly basis and show index data on a more granular level.

"Investor optimism is improving," said Carroll. "It's rebounding off the lows of 2009 but it's still only about halfway back to what it was during most of the last decade."

-- Written by Lauren Tara LaCapra in New York.

>To contact the writer of this article, click here: Lauren Tara LaCapra.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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