Nasdaq lumbers into bear market territory
— -- The tech-heavy Nasdaq composite Wednesday won the dubious honor of being the first major U.S. stock index to be in a bear market in more than six years.
After weeks of flirting with a 20% drop from its previous high, the unofficial definition of a bear, the Nasdaq finally succumbed and fell 31 points to 2279 — putting it 20.3% below its recent high set three months ago.
"At the beginning of the year, it wasn't as clear (we were) headed toward a bear market accompanied with a recession," says Hugh Johnson of Johnson Illington Advisors. "That has changed." The Nasdaq's rapid decline into a bear market is unnerving, because it:
•Marks the first tangible end to a major bull run started in October 2002. The small-stock Russell 2000 in mid-January was more than 20% off its record high last July, and the Standard & Poor's 500 is off to its worst start to a year in history. But the Nasdaq is the first major U.S. index to fall 20% from its most recent high, signaling an end to its bull run. The others aren't far behind, though. The Standard & Poor's 500 is off 15.3% from its early October record high, and the Dow Jones industrial average is down 13.9% from its most recent high.
The fact the Nasdaq is down so much is a warning to investors at large, says fund manager Robert Stimpson at Oak Associates. "The Nasdaq is kind of a leading indicator for the market."
The crushing losses show tech stocks also depend on a solid economy, says Jack Ablin of Harris Private Bank. That is a harsh reality considering analysts were calling for 20% earnings growth from technology companies this year despite the weakening economy. "Optimism ran ahead of reality," Ablin says.
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