S&P 500 Enters Bear Market

Since the Dow made it look so fun, the S&P today dipped into its first official bear market since 2002. A bear market is usually defined as a 20% drop in securities prices from their high (Not a hard feat when the financials were hyped up on imaginary money from worthless mortgages). Is it time to sell, sell, sell? Not unless you’re retiring tomorrow, tomorrow, tomorrow. Investopedia says the best thing to do when you see a bear in the market is the same as when you see one in the woods: “Tuck in your arms and play dead!” In other words, don’t go crazy selling stocks at a loss. In both cases, fighting back can leave you bleeding, although toughing it out won’t be a pleasant experience either. And if you have money leftover after filling up your car, it’s actually a buying opportunity. Which I guess is like playing dead in front of the momma bear while your buddy gathers up all the cubs while mamma is occupied and then later you and your buddy train them to harvest honeycombs for you.

S.& P. 500 Enters Bear Market as Stocks Plunge [NYT]
(Photo: Christina T)

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  1. scamcorp says:

    Only an idiot would hold on to their stocks now, the problem is bigger than even the morgage scam. The U.S. Economy has been enroned, get ready for a show.

  2. ToiletJack says:

    I’ve fought a lot of bears in my day, and let me tell you, playing dead only gets you killed. The trick is to knife them.

  3. Bladefist says:

    I would Buy Buy Buy, if I had money money money.

    No matter how much you think we are royally screwed, markets do this, and always bounce back. Buy low, sell high.

  4. Gopher bond says:

    Yeah, everyone sell, sell, sell, so I can buy, buy, buy, low, low, low.

  5. Gopher bond says:

    Why are we all verbing, verbing, verbing in three, three, threes?

  6. theblackdog says:

    @testsicles: I don’t know, know, know!

    A bear market just means my 401k buys more shares, shares, shares! (I’m young and can take the hit right now)

  7. JeffDrummer says:

    @scamcorp: Uhh, say again?

    Just thank goodness most finance people don’t think like you.

    There are good deals to be gotten, its just a matter of alot of research, some ETFs are making money, some hedge funds are doing alright, and some stocks are doing quite well.

    I am reminded of Warren Buffet, “don’t don’t think about buying stocks for ten minutes, if you don’t plan on owning it for ten years.”

    And I would bet my MBA that he’s right. If you can afford it, either research for yourself, or go to a financial analyst and invest in your future.

  8. petrarch1610 says:

    @scamcorp: I wouldn’t trust you to predict tomorrow’s weather, much less the economy.

  9. Ben Popken says:

    @ToiletJack: In other words, short-selling.

  10. Snarkysnake says:

    @JeffDrummer:

    Scamcorp’s kind of fear is what makes good stocks a bargain for the rest of us.

    That said… Clearly all of the financial companies have not come clean on what lurks in their portfolios.We have heard for just about a year now that “The worst is behind us”, “We’re in the late innings of this ” etc… And it just keeps getting worse. There is that scary feeling among average Joe’s that we are being lied to again and again so that the “smart money” can offload their toxic waste on us and we will be stuck holding the bag.Until their is some real pain being shared between Wall Street and Main Street,that feeling of distrust will be there.

  11. Kilotonne says:

    @Bladefist: Markets always bounce back? Are you sure? How is that NASDAQ doing after it declined from 5000 back in 2000? It’s not even half of that now, after eight years. What about Nikkei at 50,000 back in 1990, and after 18 years it is still below 20,000?

    The Wall Street is paved with the bones of “bargain hunters”.

    Only fundamentals rule the long-term price – P/E ratios and yield. Stock yields are laughable now, below even the government bond yields, so the stocks have a long way to go down.

  12. Nissan288 says:

    would you really take financial advice:
    1. from a random comment board on the internet?
    2. from a guy named scamcorp?

    At any rate, I wish I had money. Both to invest and also buy more stuff for myself.

  13. legwork says:

    @JeffDrummer: What might pull us out of this situation? I’m looking for good signs. Everyone loves bad news so that’s what I’m reading. I see another $1T in bad option mortgages by 2010, the banks and values are already hammered with only a fraction of the current forclosures (and their effects on prices) on the market. Energy will get worse as competing demand outpaces our attempts at production or alternatives. That trickles onto everything. We make the situation worse with Ethanol BS and a few people rich with drilling to offset 1% of our importation in 5-10yrs. Jobs are tanking now, Uncle is printing money (bailouts) like TP, etc. Manufacturing has left the building, our big 3 will be fewer soon, etc. I don’t see an out, unless someone is sneaking Gen IV reactors into production.

    Sticking with the theme, whah whah whah!

  14. azntg says:

    Does that mean it’s time for me to flee, flee, flee the country? Oy!

  15. MonkeyMonk says:

    @Kilotonne: Markets always bounce back? Are you sure? How is that NASDAQ doing after it declined from 5000 back in 2000? It’s not even half of that now, after eight years.

    Although you make a factual point it’s not really valid unless you plopped your entire life earnings all in one shot on the day the Nasdaq peaked and then let it ride until today. The problem with your criticism is that smart investors (through cost averaging and diversification) don’t invest that way.

    I had a lot of money invested in the Nasdaq though the 90′s. As those funds skyrocketed I slowly sold them off and invested the quite sizable gains into less sexy sectors. When the Nasdaq peaked and the value of my remaining investment started to decline, only then did I start buying back into the Nasdaq.

    This is all investment 101. Any smart investor has made a ton of money on Nasdaq from the 90′s through today. Volatility is your friend unless you need the money immediately.

  16. humphrmi says:

    My first reaction was to flame @scamcorp too, but as others have noted, his attitude just makes some great stocks even cheaper. This is the best opportunity I’ve had to load up on the cheap in decades.

  17. Silversmok3 says:

    The only problem I have is the universal advice to NOT sell in a down market.I understand this is done to prevent a panic that leads to a further stock loss, but when your individual stocks are not doing well, and have little prospect for improvement, don’t just keep em because the MSNBC dude said so.

    While if I had real money Id be buying select stocks, there are several issues still unsolved, like the Fed’s indifference to dollar inflation.Until that’s solved Joe Consumer won’t be buying anything,which in turn Joe Company won’t be making any money, which in turn defeats the purpose of buying the stock.

  18. On a bull market is not advisable to wear red.

  19. I smell Reagan’s 1984 campaign ads all over again. Are you better off today than you were 4 years ago?

    Can anybody say Jimmy Carter?

  20. humphrmi says:

    @Silversmok3:

    Until that’s solved Joe Consumer won’t be buying anything,which in turn Joe Company won’t be making any money, which in turn defeats the purpose of buying the stock.

    While I don’t disagree as it relates to stocks tied to consumer spending, it should be pointed out that there are a lot of markets and stocks that are not tied to consumer spending. Healthcare for example is booming. A relatively calm hurricane season last year has given insurance companies a boost. Of course there’s oil, but that’s a little frothy (to borrow a term from Greenspan). There are opportunities out there that either (A) dodge the whole recession impact, or better yet (B) take advantage of it.

  21. Orv says:

    @Kilotonne: If you buy at the peak of a boom you’re right that you might have to wait a long time. For example, if someone piled all their money into the market in 1929, they wouldn’t have broken even until 1954! This is why you don’t want to jump on a buying frenzy. Either dollar-cost average or buy when the market is low.

  22. infecto says:

    @Kilotonne: The fact that you use fundamentals and P/E in the same breath makes me worry. P/E are not fundamental to any stock price, they constantly change.

  23. bohemian says:

    When we started hearing rumblings about sub prime mortgages all of our 401k funds were shifted away from anything invested in real estate. We still lost money but lost far less than those who didn’t act before things really started to fall apart.
    I really do not trust our markets and corporate entities to be honest. Enron, sub prime lending, Bear Stearns, E-trade, there are just too many examples of higher than normal risk and outright fraud. For now all of our money is in boring thrift type stuff. If I had the money to invest further I would put it directly into alternative energy stocks or look into investing it directly into a foreign market.

  24. MaytagRepairman says:

    Most Americans that invest in stocks do so with stock mutual funds via their 401k at work using a strategy called dollar cost averaging (whether they know it is called that or not). Each paycheck they invest a fixed percentage of their income. The more stocks prices fall the more they load up on shares each purchase.

    Stocks are going on sale. If you are just contributing enough to your 401k to get your employer’s match, consider bumping it a little higher if you can swing it until this market comes back.

  25. Silversmok3 says:

    @bohemian:
    Sorry to say, but as connected as this economy is,even one bank cooking the books puts everyone at risk.

    Hence the Fed’s controversal bailout of Bear Sterns.Not to start an argument, but Bear Sterns, Enron,Etc were companies that until the music stopped were valued as bulletproof cornerstones in their fields.Heck,mortgage-backes securities were considered safe at one time.

    All that to say, don’t ever think your stock is 100% fraud/scam safe.

  26. JoeTan says:

    Do we have to live our lives as profiteers now? Yeah, you can make good money when times are tough BUT aren’t we supposed to be above that by now?

    did Bush bring us back 200years or what?

  27. Silversmok3 says:

    @JoeTan:

    Welcome to Capitalism.When did making money become a crime?
    And why should we be ‘above’ having some extra green in the bank/401K/Investment account?

    And Bush has little to do with the economy.

  28. Kilotonne says:

    @infecto: [www.etrade.wallst.com]

    Notice how the “Fundamentals” tab show the “Price to Earnings” ratio, AKA P/E.

  29. JiminyChristmas says:

    @legwork:
    @bohemian:

    Both of you express my sentiments exactly. There are a lot of adjustable rate mortgages out there that have yet to reset. All of those people who are currently in foreclosure because some mortgage broker told them, “You can refinance at any time!”? There are more where those came from. I totally agree that we won’t see the end of the housing bubble fallout until at least well into 2009.

    Likewise, I too don’t have a lot of trust in the market right now. Even when things seem to be ‘going up’ I don’t see the intrinsic long-term value. For example, I look at financial stocks and I see a bunch of people trading esoteric pieces of paper that have no fundamental relationship with productive economic activity.

    I haven’t bailed on any of my existing investments. I haven’t lost much because I have significant percentages of my mutual funds in overseas markets and totally non-sexy stable value investments. That said, I stopped putting new money into US equities a few months ago. I don’t know when I will change that, but it will have a lot to do with what happens on Nov. 4, 2008.

  30. Kilotonne says:

    I think most bulls here looking for a quick bounce are gen-X-ers, am I right? Most people of this generation are conditioned to the booming stock market, but historically, markets go nowhere for about as long as they grow, which in real terms results in losses due to inflation and fees.

    Examples – 1929-to-mid-50s, late-60s-to-early-80, early-2000-to-this moment

    So, it’s not really necessary to invest during the NASDAQ/Nikkei/1929 manias to get fleeced – there are plenty of opportunities.

  31. ArgusRun says:

    You don’t have to have a ton of cash to take advantage of the bear market. One of my coworkers was remarking to me that she was going to stop putting money into her 401k since it kept losing money. It took awhie and a financial planner to explain to her that as she is 20 years away from retirement, she should keep paying ito it as much as possible. Especially since our company matches half of what we put in up to 6% of our salary.

  32. sleze69 says:

    For everyone who says, “SELL! SELL! SELL!” I suggest they look at the S&P 500 over the past 10, 20, and 30 years. Over time, it has about a 10% return. If you have a 401K that is getting matched, just keep on buying. Although right now, the stock is going down, you are buying more shares for your money. When it does return, as it ALWAYS HAS, your S&P 500 will SHOOT up because you kept buying when it was low.

  33. MonkeyMonk says:

    @JiminyChristmas: There are a lot of adjustable rate mortgages out there that have yet to reset.

    Yes, there are a lot of ARMs out there and many of those are tied into the LIBOR which just happens to be at an incredibly low rate right now. hat means, there’s a good chance that most of those ARMs are going to reset at a lower rate that what the borrower currently is paying.

    Option ARMs are a completely different story but nobody seems capable between differentiating between two very different products so I won’t even bother.

  34. legwork says:

    @sleze69: Your matching is good but I’d certainly aim for multiple currencies. We’re never seen a loss this big. Ever. Housing has already lost a larger percentage of value in less time than it did during the great depression and we aren’t halfway through the mess. If it recovers it’ll take decades. My feeling is we’ll see fits and starts from govt programs & PR but no real consistency for 2+ years at a minimum. That’s just from my view of accelerating defaults on funky option mortgages before they slow to current record levels, and doesn’t account for the snowball of bank failures, joblessness, etc. Inventory (and real, not just reported) will double or triple current levels, or we’ll see intervention (dollar devaluation).

    Play around if you have the money, but be careful. None of us has seen anything like what’s in store.

  35. legwork says:

    @MonkeyMonk: Option ARMs heading for recast are only $500bil, of which 90% are in NegAm. One way or another, we’ll all take the results in the shorts. My reading is that this secondary effect on safer mortgages is why some talk of $2T+ in writedowns.

  36. bonzombiekitty says:

    @theblackdog: That’s my thinking too. I put 10% of my salary into my 401k every year, and my company matches it fully. I’m only 25. Provided I stay employed and the market eventually recovers, it’s good news for me. On top of that, the faltering economy is bringing down house prices so I might be able to afford to buy a place next year rather than rent.

  37. mannyv says:

    As always, you should take all financial advice with an understanding of what you’re trying to accomplish financially.

    Buy and hold is great if you’re willing to deal with the indeterminate time horizon.

    On the other hand, why not sell now and buy on the way up? It takes discipline to do it, but you’ll be liquid and earning 3.5% a year in a zero-risk savings account. If the market really is on its way up, it doesn’t matter when you buy, as long as it isn’t near the top.

  38. legwork says:

    @mannyv: As always, you should take all financial advice with an understanding of what you’re trying to accomplish financially.

    Amen, and what they’re trying to accomplish financially. The advisors, I mean. “We’ve hit bottom” has to be the most worn out line from the talking heads in years.

  39. TouchMyMonkey says:

    @Bladefist: You are correct, sir. I wouldn’t go nuts, but I bet I could get a decent return if I were to buy right now. I hear GM is at an historic low.

  40. TouchMyMonkey says:

    @Kilotonne: NASDAQ 5000 was a bubble onto itself. Anyone not under the influence of the dotcom Kool-Aid would have seen the dotcom bust coming. You won’t see 5000 again for decades.

    The S&P 500, on the other hand, is made up of more stable stuff – a far more diverse mix of stocks than NASDAQ. You’ve probably noticed that the Dow and S&P 500 move more or less together, while NASDAQ often goes in its own direction. This is why.

  41. tedyc03 says:

    Took you guys a while to decide that. My investments lost 16% this year.

  42. bonzombiekitty says:

    @tedyc03: I’m at a 14% loss so far, but I’m not really caring about it. Can’t touch the stuff for another 40 years.

  43. theblackdog says:

    @bonzombiekitty: That’s great. Currently I put in 15% and my agency will match 5% of my contributions, so that’s free money right there.