Major U.S. stock indexes plunged 3 percent or more Tuesday, stoking bearish sentiments after a brief pause.
When a market index plunges 10 percent or more from its recent peak, it enters a correction. When it falls 20 percent or more, it crosses into a bear market.
The Standard & Poor’s 500 index, a proxy for the U.S. market, hit a record high Oct. 9 and then declined 16.3 percent to its recent low Jan. 22.
While grueling, the decline wasn’t a bear market, and a rebound through Friday raised hopes, perhaps premature, that the index could avoid one.
Hidden by the S&P 500’s performance were much larger declines in many sectors and in small-company stocks, according to an analysis from S&P’s Capital IQ.
The financial and consumer discretionary sectors went solidly into bear territory, not unexpected given the credit crunch that started last summer and is now crimping consumer spending.
More surprising was the heavy hit taken by telecom and tech stocks, the chief victims of the 2000-02 bear market.
In fact, small-cap telecom stocks were the hardest-hit group during the period examined, with a 35 percent decline.
The industrials and materials sectors bordered on bear territory, despite hopes that a weaker dollar would boost U.S. exports abroad and support manufacturing.
Health care, utilities and consumer staples, typically defensive sectors, suffered the smallest declines.
Small-cap health care did the best during the slump, falling only 3.1 percent.
“It is a very difficult time to invest money in the stock market because of the crosscurrents,” said Fred Taylor, a money manager with Northstar Investment Advisors in Denver.
In the rebound that started Jan. 23, financials and consumer discretionary stocks came back sharply, while utilities, health care, energy and consumer staples lagged.
That may have been the result of short covering, that is, investors buying shares to cover stock loans they had made.
Opportunities for positive returns remain few and far between, Taylor cautioned, and investors who don’t want to wait in cash should consider dividend-paying stocks.
“If you have to have money invested in the stock market, it would be great to get dividends from your investments to weather the storm,” Taylor said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
