Lots of Bear Sightings in 1998
Thursday, 24 December 1998
N E W Y O R K (AP)
WAS IT a bear market?
Let the historians decide. No matter how they choose to describe what
happened in the stock market in 1998, there seems to be a bull galloping
its way into 1999.
Then again, since the majority of today's investors have never been through
a real bear market, 1998 had to have been a sobering experience,
regardless of its huge autumn rebound.
For one thing, the latest and greatest escape by Wall Street's famously
stubborn bovine was hardly an equal-opportunity affair. The average stock
fell 45 percent, more than twice as far as the Dow Jones industrial average,
and most still haven't staged a full recovery.
"This year wasn't without its casualities and it wasn't without a lot of
unpleasant memories of cascading portfolios," said Ned Riley, chief
investment officer at BankBoston.
The most telling statistics of 1998 may not be another year of double-digit
gains by Wall Street's favorite market measures, but the data on the flow
of money to and from mutual funds investing in stocks.
In a rare display of dismay, investors withdrew more money than they
deposited as the market dove in August, the first month of negative fund
flows since 1990.
"The guy on the street isn't feeling nirvana with the market hitting new highs
because most portfolios trailed" the rebound, said Riley. The typical stock
fund, he noted, has done only half as well in 1998 as the Standard &
Poor's 500, which was up about 20 percent by mid-December.
If disappointing returns didn't make investors rethink their undying devotion
to stocks, there was always the volatility. On 16 occasions, the sharp price
swings left the Dow more than 200 points higher or lower in a single day.
And if the Asian currency crisis of 1997 left any doubt about the meaning
of global economics, 1998 was the year the Asian crisis went Russian,
Latin American and, well, global.
Instead of merely hurting profits for multinational American companies, the
instability overseas was threatening to push the entire U.S. economy into
recession.
Meanwhile, having taken such a beating on foreign markets, lenders
stopped lending - a matter so serious that the slow-and-stately Federal
Reserve cut interest rates three times to get the wheels of business spinning
again.
"There's been more to worry about this year than at any time in my career,"
said Hugh Johnson, chief investment officer at First Albany Corp. "We
have never faced a financial crisis of this magnitude."
After romping to record highs during the first half of 1998, the Dow
peaked on July 17 as the global crisis flared up again. In just six weeks, the
measure of 30 major companies fell 19.3 percent.
Since the classic definition of a bear is a drop of 20 percent, some
observers termed the downturn a near-miss and declared Wall Street's
eight-year-old bull alive and well.
But the calculation of 19.3 percent is based on end-of-day figures. The
Dow tumbled 512 points on Aug. 31 to 7,539.07, the lowest close of
1998, but actually slid even farther the next day before reversing course at
7,400 - a drop of 21 percent from the July peak.
"Every criteria for a bear market was fulfilled. These people who say it
wasn't a bear because the Dow fell 19.3 percent instead of 20 percent?
That's nuts," said Ralph Bloch, chief market analyst at Raymond James &
Associates of St. Petersburg, Fla., also rejecting arguments that a bear
market needs to last longer or accompany a recession.
Either way, the debate over whether the Dow escaped the bear's clutch in
1998 misses the point: There's no question that most garden-variety stocks
endured a mauling that would satisfy just about any definition of a bear
market.
While the Dow pulled back after reaching a new high of 9,374.27 on Nov.
23, it was still up about 16 percent for 1998 by mid-December - well on
the way to a fourth straight year of double-digit gains.
Even better, the S&P 500 was posting at least a 20 percent gain for the
fourth year in a row, as was the Nasdaq composite index with a gain of 37
percent by mid-December.
But the Russell 2000 index of small companies headed for its first losing
year since 1994.
"The gap between the haves and the have-nots was a lot wider than I can
recall in tracking the market over the last 30 years," said BankBoston's
Riley.
In reality, then, there were two different markets in 1998.
"I would certainly call it a bear-market sized correction, and for everything
else but the large-cap market, I would call it a bear," said Robert Streed,
senior investment adviser at Northern Trust in Chicago. "A couple of years
from now, we'll have to look back and see if this wasn't the first shot
across bow to end the bull market. You never know until after the fact." |
