PROVIDENCE, Rhode Island, April 1 (Reuters) - Investment advisors say a buildup of problems is weighing on clients, who are entering the second quarter of the year struggling with trying to predict the outcome of war, the direction of energy prices and the repercussions of problems stemming from private credit. 

An exuberant rally that turned the final trading day of the first quarter on Tuesday into the best day of the year so far was not enough to save U.S. market indexes from closing the period with the worst quarterly returns seen since 2022, as the Standard & Poor's 500 index recorded a 4.6% loss for the first three months.

The anxiety reflects a shift in how advisors are thinking about risk. For years, the standard playbook of diversifying across assets provided a reliable framework. Now, advisors say, headwinds are leaving investors with less confidence that historical patterns will hold.

"Markets can handle bad news," said Mark Stancato of VIP Wealth Advisors in Decatur, Georgia. "What they struggle with is a lack of clarity about policy direction and end goals. That's what we're seeing, not just equity volatility but a broader sense that outcomes are hard to model."

SIMULTANEOUS STOCK AND BOND WEAKNESS

Both stocks and bonds had a poor first quarter, with yields on the 10-year Treasury jumping from as low as 4.01% early in March to highs of 4.44% in the closing days of the month. Even gold failed to live up to its traditional role as a safe haven, with its 13% decline in March making the month the worst recorded since October 2008.

"This is one of the toughest economic/market situations I've ever seen," said Lisa Kirchenbauer, an advisor at Omega Wealth Management in Arlington, Virginia.

Intra-day volatility grew in the first quarter, said Jim Carroll, senior wealth advisor at Ballast Rock Private Wealth in Charleston, South Carolina, masking the fact that overall, market declines have been quite orderly.

Matt Dmytryszyn, chief investment officer at Composition Wealth, a registered investment advisory firm, said he worries that cumulative headwinds could reshape the psychological attitudes of high-net worth families, causing them to rein in their spending, which could take a toll on the broader economy. 

There is a risk that growth drivers may stall in this environment, Dmytryszyn cautioned. If that happens, the economy and markets will rely more heavily on productivity gains from the rollout of AI, as well as spending by higher-income consumers. If either of those falter, he added, "we could see a two-phase equity market decline, one driven by the fear and impact of the war with Iran, with a second stemming from a U.S. economic recession."

The prospect of something just as unnerving but much more rare -- stagflation, or the combination of high inflation and stalled economic growth -- has David Haas of Cereus Financial Advisors in Franklin Lakes, New Jersey, concerned. 

"I am not expecting 7% inflation, but it's likely to be north of 4%," Haas said. Higher oil prices and supply chain disruptions might cause a slowdown in economic growth. "Not necessarily recession, but maybe close." 

A number find the parallel weakness in both stocks and bonds -- uncomfortably reminiscent of 2022, when both asset classes ended up in the red and investors found no safe haven -- is another big concern. 

"Simultaneous weakness in both stocks and bonds has exposed the limits of the traditional 60/40 cushion investors have counted on for decades," said Jon Ulin of Ulin & Co Wealth Management in Boca Raton. 

Several advisors said the challenge is the number and scope of issues with which they must grapple.

That uncertainty seems to be taking a toll on clients, said Kirchenbauer, who is anxious that clients are not responding to her communications.

"Are they numb, overwhelmed, petrified?" she said.