Bear market longest in 60 years; no end yet in sight
(Reuters 09/23 12:04:01)
By Nick Olivari
NEW YORK, Sept 23 (Reuters) - The current bear market in
stocks is already the longest in 60 years, and with few
investors willing to step up and buy, the likelihood is it will go a little longer, market analysts say,
Worse news for some investors, the Standard & Poor's 500
index <.GSPC> is flirting with its most recent low, which makes it perilously close to making this the deepest bear market since 1938.
"It's not fundamentals causing this, but an overdose of
uncertainty with" the Iraq situation, said Anthony Chan, chief economist at Banc One Advisors which oversees $150 billion in assets.
With the Bush White House reviewing military options
against Iraq, investors are on tenterhooks as to the timing of any action against the regime of Saddam Hussein. Any war could be costly and derail the U.S. economic recovery as oil prices rise and resources are diverted towards defeating Iraq.
Though Chan hopes the index won't retest the lows and go
into potential freefall, in the current climate he doesn't rule out the possibility of another 5 percent to 10 percent drop in the index, which would push it well past the depth of the 1973-1974 bear market.
The index last traded at 829.16, down some 45.7 percent
from its March 2000 high of 1527.46, and within points of its most recent low on July 23.
Then it closed 47.77 percent from its all-time record
close. During the 1973-1974 bear market the index lost 48.2
percent before recovering ground, according to data from Banc One Investments Advisors.
If it breaks that barrier, it will be the biggest bear
market drop since the 54.34 percent decline in the bear market of 1937-1938.
And if it closes below that July 23 low of 826.95 in
September, another two months will be added to the length of
the current downturn. Through to July, it stood at 28 months, the longest since the bear market of November 1938 to April 1942 which lasted 44 months, according to Banc One data.
MORE DECLINES BEFORE IMPROVEMENT
Most investors do say that things are going to get worse
before they get better.
Irrespective of any U.S. campaign against Iraq, concerns
about both the quantity and quality of earnings are another
drag on the market.
Low stock prices "are a reflection of how negative people
have become," said Lester Rich, a portfolio manager with
StoneRidge Investment Partners LLC. Base in Malvern, Pa, $600 million in assets.
"Corporate governance issues are still hanging over the
market, and its difficult not to pick up a newspaper and read an Enron story" a year after the problems first became
apparent.
The energy company filed the largest bankruptcy filing to
date in December, having failed as its stock plummeted amid
investor unease over its opaque accounting and murky
"off-balance sheet" transactions.
It was the first of string of companies to announce
accounting problems, prompting investors to question the
accuracy of results and a backlash which finally saw company
executives attest to their corporate results.
And though S&P 500 companies are expected to post profit
growth of 8.4 percent in the third quarter, that's down from an expectation of 16.6 percent at the beginning of the quarter, according to Thomson First Call.
More troubling to some investors is that the number of
warnings to positive pre-announcements is rising, reversing the trend of the last three periods.
With 882 pre-announcements, the ratio of negative to
positive is 2.2. That compares with a ratio of 1.2 in the
second quarter, 1.6 in the first and 1.8 in the fourth quarter of 2001.
OPTIMISM?
Though the index could easily plunge into new territory on
more bad news, at least one investor sees a market rally in the months ahead.
"The chances are we take out the lows but we may get a
rally in the fourth quarter," said Marian Kessler, portfolio
manager with Rutherford Investment Management LLC which
oversees $25 million from Portland, Oregon. "There is no way of prophesizing but we may have a tough time in the first half of October and then get an oversold rally."
Also remaining optimistic despite the doom and gloom
pervading the majority of shareholders, Chan said investors
should be looking at the low prices on stocks as opportunities to buy given the long-term outlook for the economy and company profits are improving. Though he admitted that "investors are getting tired of the 'opportunity story'."
But with little good news coming through, and more risk than reward on the horizon, investors are merely hoping that
the bottom is close, if it's not already in.
((Nick Olivari, Wall Street Desk, 646-223-6151))
REUTERS
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