Monday, May 26, 2014

What to watch: Sizing up 'stealth' correction

The broad U.S. stock market is again trading in record-high territory, but under the surface of the "stealth" correction this spring lurks some serious losses.

In short, while none of the well-known U.S. stock indexes have suffered an official "correction," or a drop of 10% or more, a large percentage of individual names are down 10% or more. And many are down more than 20%-plus, which puts those names into bear market territory.

On Friday, Strategas Research Partners profiled a chart that shows just how much pain the average U.S. stock has suffered in the mini-correction. The stock market has been going through a rocky period, caused in large part by nasty winter weather and chilly geopolitical winds blowing in from the Ukraine.

While the Standard & Poor's 500 index closed Friday at an all-time high of 1,900.53, the average stock in the benchmark large-cap index is down more than 7%.

Similarly, the average stock in the small-cap Russell 2000 index was down about 20%, despite the index being down about 7% from its March 4 peak.

And the average stock decline in the technology-dominated Nasdaq composite was in excess of 22%, despite the fact the index itself is down less than 5% from its 2014 peak.

The takeaway?

While the S&P 500 is now trading at a record high, the damage to many stocks can't be ignored.

Follow Adam Shell on Twitter @adamshell

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