S&P 500 is at break-even for 2011. Invitation to sell?
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Psychologically, many people find it difficult to sell a losing investment. The common refrain is, “I’ll wait to sell until it gets back to even.”
For major U.S. stock market indexes, that back-to-even moment is right about now, at least measuring year-to-date returns.
The Standard & Poor’s 500 index was down just 0.4% year-to-date through Monday (and up 1.3% if you count dividends earned), after losing 2.5% on the final trading day of October.
Even with Monday’s drop, the market rebounded enough last month to recoup most of the losses suffered during the gut-wrenching volatility of July through September.
At its lowest closing level this year of 1,099 on Oct. 3, the S&P was off 12.6% from the end of 2010. Also at that point it was down 19.4% from its multiyear high reached in late April.
After October’s rally, the S&P has trimmed the decline from its April high to 8.1% -- just a garden-variety market “correction.” (Of course, the S&P still is a long way from its all-time high reached in October 2007. It would have to rise 25% from here to recoup that loss.)
The Dow Jones industrial average has fared better this year: It was up 3.3% year-to-date through Monday, and down 6.7% from its April peak.
Smaller stocks are deeper in the red year to date, but much less so than a month ago. The Russell 2,000 small-stock index was down 5.4% from year-end on Monday. It had been down 22.2% as of Oct. 3.
The Russell index also has climbed out of bear-market territory, measuring from its April high. The index is off 14.4% since then. It was down as much as 29.6% as of Oct. 3. The threshold for a bear market is considered a decline of 20% or more from the recent high.
Though the temptation to bail may be strong for many weary investors, the market is entering what has historically been its most bullish season: On average since 1950, November and December have constituted the best two-month period of the year for the S&P 500, according to the Stock Trader’s Almanac.
But then, if historical trends were foolproof predictors investing would be a very easy game.
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-- Tom Petruno
Chart: Standard & Poor’s 500 index over the last year. Credit: Bloomberg News