Close but No Cigar

Mike Zaccardi

BEAR MARKET territory. On Friday, that phrase was all over the “financial pornography” channel, as commentator Carl Richards labels it. During trading, the S&P 500 finally dropped 20% from its early January all-time closing high. In truth, that number alone doesn’t mean much. Consider that stocks in both 2011 and late 2018 briefly encroached on 20% before bouncing back in a big way.

The media was ready last week to go with all the flashing banners and alerts. But sure enough, stocks rallied hard before Friday’s closing bell, leaving the S&P less than 19% off its all-time high—meaning we aren’t yet “officially” in a bear market because such things are measured based on closing prices. Making the 20% figure even more meaningless: Much of the market has already suffered a much steeper decline. The big Nasdaq stocks are down almost 30% from their peak last November and small-cap shares are back where they traded in summer 2018.

Amid what might have felt like an awful week for the stock market, diversified investors fared fine. If you simply owned a target-date fund, gains in the bond market and among foreign stocks made for a boring week. With little mention from the media, bonds are back to cushioning stock volatility—at least for now.

Another green shoot: We’re seeing outperformance by small-cap stocks. Normally seen as higher risk than large-cap shares, smaller companies held up better last week when major consumer defensive companies reported poor earnings. Walmart and Target saw huge single-day declines in response to profit margin pressures. It was a rude awakening for those who had sought safety in these household names.

Last week also offered a reminder not to get too cute with your portfolio. Who’d have thought that the sort of badly pummeled stocks owned by Cathie Wood’s ARK Innovation ETF would be the place to ride out last week’s market turmoil? That kind of price action might signal we’re closer to the end of this market slide than many pessimistic TV prognosticators think.

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