 Highlights of yesterday's market moves
USA Today
The record-setting Nasdaq bear market that delivered a knockout punch to tech stocks is now digging its claws into the broader market.
In yet another sign of Wall Street’s deep funk, the Standard & Poor’s 500 index, a broad measure of the stock market’s health, is officially in a bear market, too.
The widely followed benchmark plunged 53.26 points yesterday to 1180.16, putting it 22.7 percent below the March 24, 2000 high of 1527.46. A bear market is defined as a drop of 20 percent or more from a prior peak.
"The S&P 500 is a blue chip index, so when it’s down 20 percent you can’t laugh that off," said Robert Stovall, market strategist at Prudential Securities.
The S&P 500’s last bear market was in 1987, when it plunged 33.5 percent from Aug. 25 through Dec. 4, according to InvesTech Research.
Up until now, most of the pain on Wall Street has been confined to the technology sector. The Nasdaq composite, which cratered under the weight of the dot-com implosion, sky-high valuations and a sharp decline in tech spending, is suffering through the worst bear market in its 30-year history. After falling 129.40 points Monday to 1923.28, the tech-heavy index is 61.9 percent below its March 2000 high, topping a 59.99 percent bear in 1973-74.
But now it’s also becoming clear that fewer and fewer stocks are bulletproof, making already nervous investors even more jittery.
"Is there a risk that the Dow and S&P could suffer more pain?" said Jeremy Siegel, finance professor at the Wharton School of Business. "Yes. They wouldn’t be called stocks if they weren’t risky. History shows that in a final spasm selloff, it usually affects all stocks."
Indeed, it’s no longer just tech-stock speculators watching their portfolio balances dwindle. The tech wreck is already starting to infect the entire stock market. The pain is spreading:
 Yesterday, all 11 sectors of the S&P 500 finished lower, said Brian Belski, strategist at U.S. Bancorp Piper Jaffray. In the past month, only three sectors — basic materials, energy and financials — have posted gains.
The Wilshire 5000 index, which tracks virtually all of the stocks trading on U.S. exchanges, is down 26.4 percent from its March 2000 peak and is also in a bear market. More than $4.5 trillion in market value has evaporated since its high, $554 billion yesterday alone, according to Thomas Stevens of Wilshire Associates.
Even "safe" blue chips in the stodgy Dow Jones industrials, which have been holding up well, are starting to succumb to intense selling pressure. Yesterday, the Dow dropped 436.37 points, or 4.1 percent, to 10208.25, its fifth-largest point decline ever. All 30 Dow components finished in the red.
The Dow has lost 650 points, or 6 percent, the past two trading days. But it’s down just 12.9 percent from its January 2000 high — far from bear territory. Still, many money managers refuse to rule out further blue chip declines.
"The Dow stocks are at risk," said Richard Moroney, editor of Dow Theory Forecasts.
What’s he so worried about?
For one, drug and financial stocks that enjoyed sharp run-ups the past 12 months have slumped in recent days and may have little room to run. To make matter worse, he said, a cloudy earnings picture for recent standouts like Caterpillar, DuPont and International Paper could short-circuit the rally in old-line industrial stocks.
Scott Black, president of Delphi Management, agreed about the concern. "It makes no sense to me why these heavy industrial companies which are cyclical and are tied to the growth of GDP have been going up while the techs have been getting smashed."
He said investors should brace for flat earnings from the U.S.’s big industrial companies. "Reality will set in for investors who rotated out of tech into what they thought were safer stocks."
It’s one thing for speculative tech stocks to get ravaged in a bear market. It’s another when blue chips like GE, which plunged 9.6 percent yesterday, go into freefall. The reason: the pain of falling stock prices is felt by even the most conservative investors.
That’s why the S&P 500 in bear territory is so worrisome. Unlike the tech-dominated Nasdaq, it is made up of a broad array of companies from all sectors of the economy, noted Hugh Johnson, strategist at First Albany.
"The S&P 500 more accurately reflects the good times and bad times," he said. "It tells you what lies ahead for earnings and the economy. Right now, it’s not sending us a signal that the stock market weakness will end anytime soon."
That could spook investors who have flocked to mutual funds that track the wildly popular benchmark. At the end of February, $237.1 billion was invested in S&P 500 index funds, up from $171.5 billion at the end of 1998, fund-tracker Morningstar said. That means investors who piled into these funds near the index’s peak are sitting on double-digit losses, which may prompt them to sell, experts say.
Not everyone thinks the tech carnage will flatten the broader stock market.
Some bulls view the S&P’s weakness as a sign that stocks are nearing a bottom. "To get down 20 percent or more means we’ve discounted a lot of negatives and are not anticipating many positives," said Al Goldman, strategist at AG Edwards. Bargains abound, he says, but investors are too gripped by fear to take advantage.
What’s more, up until now, most of the damage in the S&P has been caused by its tech components, leading Brian Mattes of Vanguard Group to question whether the broader market is even in a bear market. In fact, the S&P’s tech components accounted for the index’s entire decline from the market peak through Friday’s close. "It’s all tech," he said.
Tech, he added, now accounts for less than 18 percent of the S&P 500, down from 32 percent at least year’s March peak.
The tech and communication services sectors have plunged close to 60 percent and 40 percent, respectively, in the past 12 months, according to U.S. Bancorp Piper Jaffray. But overall, six of 11 S&P sectors have posted positive gains during that period.
"There’s been a 50-car pileup in tech but the rest of the market is holding up fairly well," said David Sowerby, portfolio manager at Loomis Sayles.
While it’s possible Dow and S&P 500 stocks could fall further, it’s unlikely they’ll suffer a major meltdown, said Edward Nicoski, technical analyst at U.S. Bancorp Piper Jaffray. "Energy, utility and financial stocks have sported huge gains the past year. I think that trend is still on," he said.
The big worry, of course, is that the public’s confidence in the stock market and the ailing economy continue to plummet.
"That could lead to a self-fulfilling bearish circle," said Robin Griffiths, chief technical analyst at HSBC.
The key support level on the Dow is 9700, he said. If stocks fall below that level, it will signal a major shift in investor sentiment.
"If we breach 9700, it’s telling us that this is a major global bear market and investors should abandon the idea of trying to make any money at all," Griffiths said. "The name of the game, then, is hold on to what you’ve got. Investors will be become risk averse. They’ll want cash, bonds, real estate investment trusts, anything but ordinary shares."
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