The last few weeks have been somewhat quietly ushering in the beginnings of a bear market. Last week saw another day in which the stock market plunged and then recovered a little. The DJIA Dow Jones Industrial Average moved over 900 points in a single session.
The reason of the day for the drop was supposedly because of fears over additional American and Chinese tariffs, still higher to come interest rates, and tech stocks’ continuing to drop. Whatever the real reason may be, the Dow Jones has declined a sharp 6.9 percent for October. This represents the worst track record since May of 2010. The S&P 500 has dropped by more than 8.7 percent for October. This is the worst decline month it has suffered since February of 2009 (dating back to the Global Financial Crisis and the Great Recession). By Monday, the S&P 500 officially reached correction point. It has tumbled 10.2 percent off the record high.
As analysts have already noted previously, more than 25 percent of S&P 500 listed stocks are already well into bear market territory. Zero Hedge has written about this worsening situation in recent articles. They see a large number of stocks in trouble already. Per Zero Hedge, over 1,256 stocks on the NYSE reached 52 week lows while a mere 21 hit new highs.
In fact, Zero Hedge reported that over 75 percent of S&P 500 stocks passed into correction territory a few weeks ago, with:
“More than three-quarters of all S&P stocks – or 353 – have already fallen more than 10 percent from their highs. Worse, of those, more than half – 179 – have already fallen by 20 percent or more from their highs, entering a bear market.”
This chart reveals the sobering story about the S&P 500 stocks:
You might be thinking that the markets are actually not down that much though. How can the majority of stocks be so badly off when the indices are only slightly down? It is because a handful of stocks trading are so highly weighted on the averages that they disguise the truth of the broader market.
Apple has an incredible trillion dollar market value. It had only declined 4.6 percent from its October 3rd all- time high when Zero Hedge penned their report. This one stock’s performance has helped to steer the S&P away from severe correction territory all by itself.
Yet reality is far different for the majority of stocks these days. Consider the S&P 500 materials index for example. It is the worst performing sector for the month of October. At the time the Zero Hedge report was released, the S&P 500 materials index had plunged 19 percent off of the still somewhat recent 52 week highs. The top performer was the utilities index, which was still down five percent at publication time.
Stocks that are exposed heavily to China are among the worst performers. Wynn Resorts as well as Western Digital are both deeply involved in the Middle Kingdom. Together they represent some of the worst 10 performing stocks in the S&P 500.
The Nasdaq is doing even worse though. Decliners are far more often outpacing the advancing stocks. One commentator Andrew Cinko at Bloomberg summed the confusion in financial and stock markets up best with this warning:
“At this moment, he who hesitates isn’t lost, in fact, he’s got a lot of company as stock market pundits engage in verbal duel over where we go from here.”
Clearly this analyst is erring on the side of optimism in his assessment of a grimly unfolding picture in U.S. stock markets.
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