Bear Market is a term that scares Wall Street and investors. What does that mean? And how does that affect both Wall Street and Main Street? Adam Shell explains.
The October lives
The broad US stock market fell for the twelfth time on Tuesday in the past 14 days, putting its worst October since the financial crisis of 2008 on track. The market, as measured by the Standard & Poor's 500 stock index, has become volatile since reaching a record high on September 20 and taking a defensive turn.
Investor psychology has become more cautious in the face of a growing list of risks burden for the 9-year bull market. These risks also now include corporate earnings concerns after two industry giants, Caterpillar and 3M, released a outlook that worried investors and sent stocks plummeting early on Tuesday.
This news contributed to investors' existing concerns caused by China's slowing economy, global trade disputes and rising interest rates in the US, making borrowing for businesses and buyers more expensive.
"Markets remain wrapped in a thick risk cover," said Stephen Innes, head of trading in Oanda, a foreign exchange trading firm.
Investors were stunned on Tuesday, the Dow Jones industry average fell nearly 550 points, or more than 2 percent, at a time before catching up some of their losses to close 126 points, or 0.5 percent, lower at 25,191. The technology-stock-packed Nasdaq Composite again took the brunt of the losses, plunging briefly into the "correction" region or more than 10 percent below its record high in August, before 0.44 percent lower at 7438 or 8.3 percent from its recent high lock .
October has a story of frightening returns and heightened volatility. The stock market crashes of 1929 and 1987 occurred in the tenth month of the year, as did the nearly 17 percent powerlessness in 2008, when the US banking system was about to collapse, according to data from S & P Dow Jones indices. And no month since 1950 has had more daily price movements of 1 percent or more in each direction, according to LPL Research data.
The S & P 500 has fallen 5.9 percent so far in October
But not the whole story is bad. For the past 20 years, October has been the best month for the Dow, with Bespoke Investment Group's average monthly growth of 2.5 percent and 75 percent of the time.
Wall Street pros are still trying to decipher whether the recent decline in stock prices signals a change in the market trend from top to bottom or whether the price declines are simply a regular adjustment that will end with a renewed rise in stock prices.
In a sign of hope, The S & P 500 closed at 2741, above the 2700 mark, which marked its low earlier this month and served as a sort of bottom for the market. Some Wall Street professionals say the sale was overblown and buyers would reappear and rebuild stocks.
"The (market) is oversold," remarked Mark Arbeter, president of Arbeter Investments, adding that stocks could set up Another positive indication is that the market has become considerably cheaper than the end of January, than the optimism the investor was far more exuberant. The S & P 500 is 17.7 times higher than its expected performance in the next four quarters, 4 points less than the price-earnings ratio of 21.7 to the historic high of 2018 on January 26, reports the yield tracker Refinitiv. However, entering the market this month could be a sign that things are coming and "setting the tone for the quarters ahead," warns Oliver Jones, market economist at Capital Economics in the UK.
What concerns Jones is that many parts of the market that are attached to the health of the economy, such as tech companies and companies that sell discretionary goods to consumers , have performed worse than so-called "defensive" stocks such as utilities and makers of consumer staples. This "reflects investors' concerns about growth prospects in the US and China," Jones said in a report.
Jonathan Golub, senior US equity strategist at Credit Suisse, called it "post-traumatic volatility." In New York, markets were said to "recover somewhat" after sharp swings. "It's not uncommon for the markets to stay nervous for a while," he said in a report. Following the sharp price swings on Tuesday and subdued losses, the S & P 500 Index closed 6.5 percent below its September closing price at the time and the Dow was 6.1 percent below its record of October 3.
The Wall Street hoped that strong quarterly numbers would support the market, but that did not happen, though analysts expect the companies in the S & P 500 to publish their third consecutive quarter of earnings growth above 20 percent, according to Refinitiv.
Signs of investor anxiety, while 79 percent of the 111 companies in the S & P 500 have outperformed the third-quarter earnings outlook, Bank of America's Merrill Lynch researchers are not driving much higher stocks, suggesting that "the good news
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Small shares suffer
The Russell 2000, an index of small business shares, hit 0.8 percent on Tuesday fell, moving deeper into the correction area, 12.3 percent below its August record In light of continued weakness in stock prices and a growing list of concerns, the broad S & P 500 is still not close to the 10 percent correction threshold, said Hank Smith, Co-Chief Investment Officer at Haverford Trust, to USA TODAY via e-mail.  The market turmoil feels worse, he added, as investors have become accustomed to rising stocks th virtually no wild swings along the way.
"With so little volatility in recent years, investors are emotionally reacting to any point loss," said Smith.
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