The hidden bear market: Most S&P 500 stocks are in "correction"

The signs of a bear market

No bull: More than two-thirds of the S&P 500's individual stocks are now either in a "correction" or a bear market. 

More than 350 companies out of the 500 tracked by the S&P 500 index have lost more than 10 percent of their value since hitting their 52-week highs, according to a recent analysis from Reuters. Within that group around 180 stocks are now in bear market territory, with their shares having lost more than 20 percent of their value since hitting their 52-week high. 

A bear market is one where stock prices decline at least 20 percent from their recent peak. A correction is when shares drop at least 10 percent from their recent highs. Shares on Thursday opened higher, regaining some of the ground lost earlier this week. 

For some investors, the slump in S&P 500 companies' shares is a bright red flag. Their chief concern is that U.S. and global economic growth has hit its high-water mark for the current business cycle and is already starting to weaken. Most economic forecasters, along with the Federal Reserve, think the hot economy is likely to cool in 2019, which could hurt corporate profits. 

U.S. stocks tumble, Dow Jones slides 600 points

Another factor weighing on companies whose stocks have sunk is what many see as the potential damage from a prolonged U.S. trade war with China, either because of retaliatory tariffs imposed by Beijing or because of weakening Chinese demand.

S&P 500 expected to continue falling 

Investors may also be signaling their concern that interest rate hikes by the Federal Reserve will dampen U.S. economic growth, according to Capital Economics. Among those most concerned about the central bank's rate hikes is President Trump, who escalated his attack on the Fed this week, saying in an interview with the Wall Street Journal that Fed Chairman Jerome Powell "almost looks like he's happy raising interest rates." 

The U.S. economy could begin to slow within "no more than a few quarters," Capital Economics predicted in a research note. "Our forecast is therefore for the S&P 500 to drop by a total of about 15 percent from its recent peak."

What investors should do next amid stock market sell-off

A decline of 15 percent would place the index firmly in correction territory -- and approaching bear turf if such a stock slide worsened

About one in five S&P 500-listed stocks earlier this week traded at their lowest levels in at least a year, according to Bespoke Investment Group. Four sectors were particularly hard hit, it said, with declines of at least 20 percent: material, financial, consumer discretionary and industrial stocks. 

Tariffs are starting to bite

One of the worst hit is Newell Brands, the owner of brands such as Sharpie and Yankee Candle, which in August warned about the impact of Mr. Trump's tariffs and the liquidation of Toys "R" Us, which was a top buyer of its Graco strollers. Newell shares have declined more than 50 percent since their 52-week high. 

Newell said it has felt the sting of higher U.S. tariffs on Chinese goods and of retaliatory levies imposed by Canada and the European Union after the Trump administration raised tariffs on steel and aluminum imports earlier this year. 

What's behind the stock market sell-off?

"As the tariffs currently stand, the annualized impact on Newell brands could be as much as $100 million," CEO Michael Polk said during a conference call with analysts in August. He added, "We're living through an incredible period of change."

It might not be the type of change that investors are prepared for. The most recent bear market began in 2007, when the U.S. financial crisis crippled everything from the housing market to stock market investors. 

Investment experts recommend riding out a bear market rather than trying to time stock sales and purchases. It's notoriously hard to accurately gauge where the market is headed -- indeed, the most bullish bounce-backs for stocks are typically concentrated in just a few days of trading before they become apparent to everybody. 

While the average bear market brings a loss of nearly 40 percent for the S&P 500, it usually doesn't last more than two years. Better to simply ignore the market noise -- hard as that can be -- and just keep socking away your savings on a steady basis through regular payroll deductions into a company 401(k) or IRA.