The Truth Behind the S&P 500: Part VIII

By Aleksandra Gigowska @ Shutterstock.com

I’ve written to you many times about the scary truth behind the S&P 500. The reality is, if you’re buying a tracking fund, you’re really putting your faith in the few stocks that dominate the value weighted index. Now that those big stocks are getting slapped with reality, the underbelly of index investing is being laid bare. Aimee Picchi, writing at CBS MoneyWatch calls it “the hidden bear market.” She writes:

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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.

I wrote to you in August that “If you haven’t constructed your bond portfolio yet, then what are you waiting for?” That advice still stands. Start adding counterbalancers to your portfolio as soon as you can. Once it’s too late, it’s too late.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.