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Portfolio > Mutual Funds > Equity Funds

Fund Returns Suggest Possible Market Slump: S&P

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NU Online News Service, Oct. 19, 2004, 3:05 p.m. EDT

Could this be the end of the bull market?[@@]

With the average U.S. equity mutual fund up a little more than 1% this year through September, fund performance looks uneasily familiar, says Standard and Poor’s Investment Services, New York.

Analysts at the investment research and rating firm warily point out that the current pattern of fund returns match what typically can be seen when an upswing is nearing its end.

Specifically, large-cap value funds held up better in the 3rd quarter amid general declines of domestic equity funds. That kind of performance echoes what is often seen in the latter stages of a bull market, S&P says.

Large cap funds fell by around 0.4% during the quarter, compared to a decline of almost 3% for domestic equity funds.

Altogether, funds saw an average decline of close to 3% in the third quarter.

“After bidding up smaller, lower quality companies in the early stages of a bull market, investors traditionally turn to larger, more stable and higher quality companies as growth becomes harder to find,” explains Sam Stovall, chief investment strategist at Standard & Poor’s. “There is a possibility that we are in the midst of a secular bear market combined with short-term, cyclical bull markets, although it is too soon to tell.”

S&P says a cyclical bull market starts with a 20% or more bounce off a previous bear market’s closing low, while a secular bull market sets new record highs.

The company defines a bear market as a decline of at least 20% from a recent high. The S&P 500 would need to close at 926 before Standard & Poor’s would label the current weakness as bear country.


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