Yesterday's wicked 283-point drop in the Dow Jones Industrial Average lends renewed credence to the increasingly worrisome view that the bear market may have a lot more teeth. Supporting this argument is an intriguing study by the chief investment strategist of Standard & Poor's, Sam Stovall, which looks at more than half a century of data to conclude it's far too soon for the bear to hibernate.
Last week's three-day, 528-point jump in the Dow may have been little more than a short-lived bounce, as the report opens the possibility of an additional 12% drop in the Dow before year-end.
The thrust of Mr. Stovall's study is to provide investors with an insight into how stock prices fare following a bear market decline, and to offer some perspective on the length and depth of a bear market.
A market is in bear territory when stocks decline 20% between peak and trough. The latest bear market, as reflected in the S&P 500, kicked off October 9, and in theory became official almost nine months later, July 9, when the index crossed the 20% threshold.
Whether the bear has had enough after that 20% drop is anyone's guess, but judging from the study, the answer is no. History shows that the S&P 500 doesn't cross the 20% threshold until two-thirds of the way through the overall decline. In other words, there's another third to go before anyone can legitimately claim the bear is dead....Go here for the conclusions.
Saturday, July 26, 2008
This Bear Market May Have More Bite
From the New York Sun: