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Anatomy of a Bear Market
The S&P 500 may have fallen by more than a third from January 2000 through October 2002, but that figure doesn't tell the whole story. Because the S&P is value weighted, the information technology and telecom companies and the large corporations that dominated the market during the bubble of the late 1990s had a disproportionate impact on the performance of the index. So while it was plunging, the share prices of almost two-thirds of the companies in it either rose or lost less than 10 percent of their value on an annualized basis. Judged by an unweighted average or a median, the S&P 500 actually fell by only 5 percent during those same 34 months. Investors lost money, but it is a strange bear market when fewer than half of the stocks in the index lose more than one-tenth of their value. Share prices in the bubble sectors now seem to be back in line with the rest of the market, suggesting that the worst could be over.
The take-away: A close look at the performance of the S&P 500 suggests that the bear market has been more a sector correction—the bursting of the telecom, information technology, and megacap bubbles—than the outgrowth of broad economic weakness. The market might not be ailing as badly as most people think.
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© 1992-2003 McKinsey & Company, Inc
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