The traditional media is taking note today that the S&P 500 is now in ‘correction’ territory which is defined as a drop of 10% from highs but less than 20%. At 20%, the correction becomes a bear market.
It is not clear where these definitions come from, but it is likely that journalists that needed a convenient shorthand for characterizing the market in a headline were involved.
Most of the time, the ‘correction’ and ‘bear market’ definitions do provide some good insight into market conditions, but as I’ve been discussing for nearly a year now, there is a giant disparity between the indexes and various sectors and calling the current state of the market a ‘correction’ is a joke.
This graph provides a much better picture of what market participants are dealing with. Over 50% of the stocks in the S&P 500 and nearly 80% of Nasdaq stocks are already down at least 20% and in technical bear markets. Nearly half of the Nasdaq stocks have been cut in half.
Despite these daunting numbers, the S&P 500 just managed to slip into a correction yesterday and would have to suffer a severe beatdown to be in the bear market territory.
Because the media and institutional Wall Street focus so much on the indexes rather than the internal stats, they don’t report the reality of the damage that has been done. It keeps sentiment more positive than it should be, and that makes it harder for all those broken stocks out there to find support.
From my perspective, this is a roaring grizzly bear of a market, but for the folks on television, this is just some routine correction. The good news is that I’m looking for the end of this bear market while the folks on TV are still trying to figure out if one has even started.