Wall Street's post-election stupor is turning into real a headache for some stocks, as many well-known and even ballyhooed names fall into bear market territory.
Stocks fell by triple digits Thursday, yanking the Dow Jones industrial average down 434 points over the two days after the election to 12,811. While the Dow is down just 6% from its 52-week high, certain stocks are suffering more serious pain.
Nearly a quarter of the stocks in the Standard & Poor's 500, 122, are in a bear market, unofficially defined as a 20% decline from a recent high. Some bearish stocks include burrito chain Chipotle, energy drink maker Monster, video rental service Netflix, apparel maker Nike and alternative energy firm First Solar.
The starkest example, Apple, has been getting hammered since late September. It's down 24% from its 52-week high. "With momentum stocks, everyone gets talked into this being the next big thing," says Kim Caughey Forrest of Fort Pitt Capital. "Sometimes, they get it wrong."
While it's too soon to read too much into the bear-market treatment some stocks are getting, investors are taking note of:
Leaders tumbling. Given the fact all the major indexes had double-digit percentage gains earlier this year, investors were prepared for a pullback, says David Sowerby of Loomis Sayles. But the vicious selling is in many cases hitting the stocks that were big winners and seemingly immune, he says. Often when winning stocks stumble, they "don't have a hiccup, but a large belch," he says.
The Apple factor. There's no dispute that Apple has been the market's de facto leader. The stock is so widely held, it's become the top holding of many individual investors, and accounts for roughly 5% of the value of the S&P 500. Seeing it stumble gives investors pause, says Paul Hickey of Bespoke Investment Group. Nervous investors who piled into market leaders such as Apple are getting spooked and bailing in droves, says Brett Golden of market information firm ChartLabPro.
Tax fears. Investors don't like uncertainty, and having the election resolved takes care of that. But investors also don't like higher taxes, which is a definite risk as President Obama and Congress remain at loggerheads. Investors are looking at the strong possibility of higher tax rates on gains from investments. Some are reacting by selling winners now and locking in 2012 tax rates, rather than holding and facing higher tax rates later, Hickey says.
Sowerby says investors can use the current bear market in individual names to buy shares of former leaders at a discount. But Golden says leaders plunging into a bear market might be coming down to where they belong as euphoria wears off. They're "ticking time bombs if they don't keep the growth coming," he says.
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