U.S. stocks' pullback reaches 15% on key indexes
The 10% “correction” in stock prices in May has quickly turned into a more painful pullback in June.
After Monday’s decline, the average New York Stock Exchange stock now is down 15.7% from its April peak, as measured by the NYSE composite index. The index is down 4.1% just since the end of May.
Potential buyers who just a few months ago were hoping for a 10% market drop -- so they could get aboard -- now have plenty of reasons to stay sidelined even as stocks get significantly cheaper.
Of course, “cheap” is a relative term. The Standard & Poor’s 500 index, at 1,050 on Monday, had a price-to-earnings ratio of about 12 based on S&P’s latest estimate of 2010 operating earnings for the companies in the index.
But if the global economy faces a deep slowdown or worse in the second half of the year, corporate earnings could take a whack -- which means the 2010 price-to-earnings ratio would be higher than that otherwise reasonable-looking 12.
Bargain hunters have to decide just how cautious, or not, to be right now. One risk that has moved to the front burner is that government austerity moves in Europe -- an attempt to appease bond investors -- could push much of Europe back into recession. That also could boost the risk of a U.S. "double dip."
The otherwise bullish Bob Doll, chief equity strategist at money management giant BlackRock in New York, said in a note Monday that investors "will need to see a recovery in European debt markets and evidence that contagion can be contained before confidence can be restored." And lately, nothing European policymakers have done has made their bond and stock investors feel better for more than five minutes.
In Greece, Spain and Portugal, countries where financial-system fears are most pronounced, stocks already are well into new bear markets, meaning declines of at least 20% from their 52-week highs.
By contrast, most broad U.S. share indexes still are in correction territory, meaning losses of between 10% and 20% from their latest highs.
And measured year-to-date, which is probably the way most people look at their portfolios, declines in most major U.S. stock indexes are relatively modest. The S&P 500 is down 13.7% from its April peak but its year-to-date loss is 5.8%, after last year’s 23.4% rally.
Indexes of smaller stocks, which had led this year’s rally until May’s sell-off, are only slightly in the red year to date. The Russell 2,000 small-stock index is down 16.6% from its April high but the loss since Dec. 31 is a mere 1.1%.
Bulls will say that lower stock prices are a gift. But they obviously haven't turned out in large numbers so far to back that up with their dollars. . . .
Below is a tally of major indexes, their declines from their spring highs (through Monday) and their year-to-date percentage changes. The figures are price changes only (dividend income isn’t counted).
--- Dow Jones industrial average, down 12.4% from its spring high, down 5.9% this year.
--- Nasdaq composite, down 14.1%, down 4.2%.
--- Bloomberg real estate investment trusts, down 14.8%, up 2.9%.
--- S&P mid-cap, down 15.1%, down 0.3%.
--- S&P small-cap, down 15.9%, down 0.7%.
--- Dow transports, down 16.0%, down 1.5%.
--- Russell micro-cap, down 17.6%, up 0.8%.
-- Tom Petruno
Photo: A trader on the New York Stock Exchange floor on Monday. Credit: Mario Tama / Getty Images