Economic News

Majority of S&P 500 Companies are Now in a Bear Market

The past few weeks have not been too kind to the markets. In fact, after months of gains, the S&P 500 is now down 3% for the year thanks to several rounds of sell-offs. While that overall correction is modest, it’s a different story for many of the companies included in the bellwether index. As MarketWatch reports, the majority of S&P 500 stocks are now finding themselves in a bear market.

To comprehend what’s happening, it’s important to first understand how analysts define things like “bear market.” If a stock is down 10% from a recent high, it’s said to be experiencing a correction. Meanwhile a decline of 20% from a high is when a stock is declared to be in bear market territory.

Among the numerous major stocks that are off 20%+ from their 52-week highs are Facebook (-34%), Apple (-29%), Amazon (-22%), and Netflix (-37%). However the bear doesn’t just have FAANGs — it expands beyond tech as well. For example Bank of America, Wells Fargo, and Citigroup are all down between 26 and 32%, Home Depot has slid 20%, and GE is off a whopping 63%, just to name a few.

What’s also concerning is the number of S&P 500 companies falling into bear territory has grown significantly in just a few weeks. In a report sent to investors last month, Morgan Stanley equity strategist Michael Wilson declared that the U.S. was already in a bear market, adding “While 2018 is clearly not a year of recession, the market is speaking loudly that bad news is coming.” Part of his reasoning for this assertion was the fact that, at the time, 40% of stocks in the S&P 500 had sunk below that 20% threshold. With that stock count now climbing above 50%, there’s little question as to whether Wilson is feeling confident in his hypothesis.

As I noted earlier, the S&P 500 is currently down around 3% for the year. That said it’s off by more than 11% from its previous high seen in September. Thus the index still has a way to go before it nears official bear territory. Still, with the majority of stocks in the index now off 20% or more from previous highs, concern that the markets could be turning is increasing. Of course certain negative factors — such as the on-going trade war with China, political uncertainty, and the like — could still turn around in the new year and limit current loses to a mere correction. But, if things continue on their current trend, a full-blown bear market could soon be taking over.

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