Stocktake: Stocks are in a ‘stealth bear market’

The S&P 500 fell into official correction territory (a decline of at least 10 per cent) last week, while the tech-heavy Nasdaq 100 is now in a bear market (a fall of at least 20 per cent). That said, we have been witnessing what Schwab strategist Liz Ann Sonders calls a "stealth bear market" for some time now.

Even when the S&P 500 was down just 10 per cent, says Sonders, more than half its component stocks were in bear markets.

The figures are more dire again for tech stocks. The Nasdaq Composite index was recently 15 per cent off its peak, but more than three-quarters of the index had fallen at least 20 per cent. Almost half (46 per cent) had more than halved.

Similarly, almost all (83 per cent) of stocks in the small-cap Russell 2000 index are in bear markets.

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Unprofitable growth stocks, many of which hit unsustainable heights last year, have been especially hammered – Bloomberg data shows the least profitable quintile of Russell 3000 stocks has endured a median decline of 59 per cent.

Scary figures. If you’re a glass half-full type, however, you might argue talk of a looming market crash is overdone. Yes, indices may still look “too high”, given 2022’s awful headlines, but investors in many expensive stocks have been pricing in increased risks for some time now.