Bear Market

WITH THE DOW JONES industrial average this morning having slipped 268 points from its peak -- down 154 points in the past four sessions -- many observers ask, "Is this the start of a 'bear' market?"BEARS' DEN: "We're now seeing prolonged signs of a classic market top." (John Bollinger, CNBC, late yesterday)"Historically, best election year strategy is -- sell your stocks. Tough decisions by the President, Congress and Fed get pushed off until after election. Candidates raise everybody's hopes -- then reality sets in."

If your employer offers a 401(k) plan, sign in. Then stay in and keep putting money away for your retirement in well-diversified investments. This message from two studies on 401(k) plans seems particularly relevant given the turmoil in the financial markets. "Most workers who have continued to save and invest in their 401(k) retirement plans over the past several years have done well, despite ups and downs in the stock market," said an August study by the Employee Benefit Research Institute and the Investment Company Institute.

ARE YOU waiting for a sharp market correction before you invest? Don't, according to financial adviser David Dreman. "Don't wait for a severe setback to find good `value stock' buys. Look for stocks with relatively low price-earnings ratios, above-average dividend yield and low price-to-book value ratios," he advises.WORKING LONGER? "Too many Americans feel retirement will be a breeze. Most baby boomers want to retire by age 60, haven't saved much, doubt they'll get many Social Security benefits -- but expect to live very well in retirement.

WE'VE finally heard the best-put argument why cutting taxes now is not only politically dubious, but also economically insane.It goes like this: If we do it the stock market might crash. Case closed, I guess. Anybody really want to test what would happen if a large tax cut triggers fear of an overheated economy touching off higher inflation rates and a more restrictive monetary policy? It's a blueprint for a grizzly of a bear market that would make 1987 look like a minor correction.This is not the ravings of a pro-government big spender who wants to preserve the federal surplus so it can be squandered on social programs.

ALTHOUGH YOU can make 1999 IRA contributions until April 17, make them now to take fuller advantage of the tax-free growth of IRAs, advises "Moneyline News Hour.""Congress may raise the amount you may set aside in a 401(k) retirement plan. One proposal allows increasing an employee's maximum deferral from $10,000 to $15,000 a year." (Ellin & Tucker newsletter)WALL STREET WATCH: "Stocks [are] still overvalued; conditions ripe for the market correction to continue." (Sung Won Sohn, chief economist, Wells Fargo & Co.)

IF YOU are looking for conservative advice, the No-Load Fund Investor says: "Stay put and stay diversified. With new money, `dollar-cost average' to reduce volatility risk. Keep 15 percent of your cash in money funds for buying opportunities. Buy utility stocks and funds. Move `lightly back' into European and Asian stocks."SAFETY IN YIELD: "Warren Buffett is buying real estate investment trusts," says Today's Value Investor. "Reason: High yield of REITs -- nearly three percentage points above long Treasury returns -- provides a `floor' in this volatile market."

WANT TO own stocks held by the greatest number of investment clubs? Ranked by the number of clubs holding the following favorites, here, from Money magazine, are the top 10:Intel Corp., Pepsico Inc., Merck and Co. Inc., Lucent Technologies Inc., Home Depot Inc., Cisco Systems Inc., AFLAC Corp., Diebold Inc., Motorola Inc. and Clayton Homes Inc.In response to several requests, here is a definition of a "growth stock" from Better Investing magazine: "A growth stock is a stock in a company that has a five-year record of above-average earnings growth relative to other companies and the overall economy.

HERE ARE SOME random suggestions for your money:"Get an automatic tax extension, even though it's not needed. An extension gives time to collect records and find tax-saving ideas. See your tax person." (Tax Hotline.)"Reduce impact of a possible `bear market' by increasing your bonds and lower your stock percentage. As humorist Will Rogers said, `I'm more interested in the return of my money than the return on my money.'" (Rex Rehfeld of Gruntal & Co.'s Baltimore office.)CHEERFUL NOTE: "Investors should have it very easy in 1999.

ADVICE FOR this roller-coaster market:"There's a Red Tag Sale on Blue-Chip REITS (real estate investment trusts). Although property markets are strong, nobody loves property stocks. Many are on clearance racks; it's a buying opportunity." (Forbes, Nov. 1)"More likely than `Dow 36,000' -- the title of a new best seller -- is Dow 3,600, only a retreat to a 12.5 price-to-earnings ratio." (Jeremy Grantham, investment strategist)"If you have 25 or 30 years to retirement, what happens today isn't terribly important in the grand scheme of things."

SHOULD YOU BUY stocks in a falling market? "When great stocks fall 30 percent or more," says Personal Finance, "it's time to buy."Of beaten down companies such as Coca-Cola Co., Disney Co. and Gillette Co., it says: "Each of those giants is hurt by slowinternational growth and the strong dollar, but short-term problems are nothing in light of long-term positives."Although many people know a bear market is a decline of 20 percent from its recent high, some investors may wonder what causes a sharply "down" market.

Investors of all ages have seen their portfolios take a hit in this bear market. But will losses have a greater effect on younger investors, making them less likely to buy stocks in the future? Some academics think so. With little investing experience under their belt, young investors might conclude they should avoid stocks after last year's market plunge. Yet, if history is any guide, young investors could become big winners if they invest in stocks during a bear market and reap the rewards when those shares appreciate later in a bull market.

NEW YORK -Stock prices sank yesterday to fresh bear-market lows on renewed worries about the country's banks and about General Motors Corp. The market opened lower and fell steadily throughout the day, with the Dow Jones industrial average sagging 281.40 points, or 4.1 percent to 6,594.44, falling below the nearly 12-year low it set Tuesday. Yesterday's decline marked the second time this week that the blue-chip barometer fell nearly 300 points. The Standard & Poor's 500 dropped 30.32 points, or 4.3 percent, to 682.55, its lowest level since September 1996.

NEW YORK - The Dow Jones industrial average plummeted 345 points yesterday on a confluence of poor news about the economy, although investors could not pin the drop on any overriding reason. Reports showed that retail sales were weak in August, just as more Americans filed for unemployment benefits. Anxiety lingered about a global slowdown. Fears of another financial crisis refused to go away. None of the news came as a shock to Wall Street. So what pushed the Standard & Poor's 500-stock index down 3 percent, its worst daily performance in three months?

It's official. We're in a bear market. Now what? If you have done all those boring things that financial planners nag about, like making sure you have a diversified portfolio, you should be in good shape to weather the downturn. You might even be in a position to snap up bargains in the stock market while prices remain low. But if all your money is tied up in a narrow selection of stocks, you may be in for one of those hard lessons that bear markets deliver. A bear market is generally defined as a 20 percent decline from the most recent market high.

Baby boomers are afraid of the bear market. Raised on Wall Street's buy-and-hold primer that's been spoon-fed to the first generation of 401(k) investors, many boomers gritted their teeth and stayed with the market through the 2000 to 2002 bear. Now, however, retirement is only 10 years away - or less - for many boomers, and they are wondering if it is foolish to stay the course. The stock market has recently touched bear market territory again - a drop of about 20 percent since October 2007.

Timing is everything. And retiring in a bear market - or even something just flirting with bear status - couldn't be worse timing. Baltimore's T. Rowe Price Associates crunched some numbers to figure the impact of a bear market on retirement, after the S&P 500 index fell nearly 18 percent between October and March. Bear markets - usually defined as a 20 percent decline in the market - are never happy times for investors. But hitting one in the first five years of retirement can spell serious trouble down the road.

It's the nightmare scenario for a person retiring, or just retired. A bear market - a harsh, lengthy downturn - devours savings just when a person needs to start using the stash. Analysts have been speculating that we could be in such a period, and financial planners have been going over portfolios to make sure clients can weather it. There is never an opportune time for a bear market, or what typically is defined as at least a 20 percent drop in stocks that continues for months or even years.

A416-point stock market rally Tuesday seemed to rescue investors from the bear's claws, but they have to wonder if the beast is gone for good. Many analysts aren't sure the surge was anything more than one of the powerful rallies that often come during bear markets, only to see stocks turn down again. Last week's rally was set off by an innovative move by the Federal Reserve to relieve some of the tensions on lenders and get money flowing to borrowers by letting lenders use distressed mortgage-related bonds as collateral for loans from the Fed. But stocks remain well below their record highs; a common view is that a recession is now unavoidable and the bear market has not run its course.

Are we in a recession or not? For a person simply focused on keeping a job, the distinction between a slowing economy and the beginning of a recession might not matter much. Whether the economy is just weak or in a recession, the risk of losing a job builds. And, of course, the longer and deeper the economic downturn lasts, the greater the risk becomes. For investors, however, there is a reason for the current preoccupation with identifying a specific time when the economy did, or might, enter a recession.

Paul Tudor Jones II leans back in his chair and grins. The stock market is going to crash, and he knows it. "There will be some type of a decline, without a question, in the next 10, 20 months," he says in his rich Memphis drawl. "And it will be earth-shaking; it will be saber-rattling." Coming from a financial speculator as prominent as Jones, a man with about $19 billion of short-term trading capital at his disposal, the words might be enough to send ripples through a stock market that, apparently defying logic, has been hitting new highs each day. Except that the crash to which Jones refers occurred Oct. 19, 1987.