If it looks like a bear and moves like a bear...

Published September 28, 2011


(NEW YORK) After a week in which stocks sank more than 6 per cent, the sell-off in equities that began five months ago is coming perilously close to bear market territory.


Whether this correction turns into a full-fledged bear, and whether the economic slowdown that started the selling in late April is labelled a recession may not matter much in the end.

While it's true that the Standard & Poor's (S&P) 500-stock index isn't technically in a bear market now - at the end of the week, domestic equities were off 16 per cent from their April 29 peak - plenty of other parts of the market have dropped more than 20 per cent, the requisite mark of a bear.

Small-company stocks in the Russell 2000 index, for example, fell as much as 25 per cent earlier this year.

Foreign stocks in the Morgan Stanley Capital International EAFE index lost as much as 26 per cent. And the MSCI emerging- markets index was down around 27 per cent from this spring.

Four of the 10 sectors that make up the S&P 500, meanwhile, have also slipped into a bear market.

As for broad domestic equities, they've taken investors on a very rough ride since the financial crisis of 2008 and early 2009.

'This is about as severe as it gets without it being called a bear market,' said Sam Stovall, chief investment strategist at S&P Equity Research.

In fact, if this slide stops short of the 20 per cent mark, it will have been the most severe correction for the S&P 500 in recent memory that didn't morph into an official bear market.

This slide feels so much like a bear because of its speed, some market strategists say. Technically, the correction began on April 29, when the S&P peaked at 1,363.61.

But the bulk of the 16 per cent decline took place in two brief but volatile periods.

First, from July 25 to Aug 8, stocks fell about 16 per cent. After rebounding, they sank more than 6 per cent last week.

These free falls would make 'even rational, seasoned investors feel like they've been raked over the emotional coals', said James B Stack, editor of the InvesTech Market Analyst newsletter.

For nearly everyone, investors included, recessions are painful. That's another reason to hope the economic downturn doesn't morph into one. -- NYT