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A Grim Date's Mixed Bag of Blessings

By Sam Stovall Five years after the crash, the S&P 500 has crept back to within 20% of those record levels shows no sign of a repeat performance. How soon could it and the other indexes rally?On Mar. 24, 2000, the Standard & Poor's 500-stock index reached an all-time high, closing at a fraction above 1,527. Today, five years later, it remains more than 20% below that level. S&P believes that the major U.S. equity benchmarks are in cyclical, but not secular, bull markets.

What makes the difference? In our opinion, the distinction between "cyclical" and "secular" is more than just time. A cyclical bull market follows a bounce of 20% or more off of the prior bear market's closing low. It turns into a secular bull market once it goes on to set a new record high.

MEASURE OF A MARKET. After setting its high in March, 2000, the S&P 500 entered bear-market territory in June, 2001, posted a decline of 49% at its nadir in October, 2002, began a new cyclical bull market phase in May, 2003, and then gained more than 50% through Mar. 23, 2005. Even with that advance, it remains 23% below its all-time high (remember that a 50% decline requires a 100% advance just to break even). That's some ride!

When will the three major equity indexes -- Dow Jones industrial average, the Nasdaq composite index, and the S&P 500 -- transform into secular bulls? It depends on the benchmark. At a 10% compound annual rate of return, it would take less than one year for the Dow to surpass its all-time high of 11,722.98, while it would require less than three years for the S&P 500 to top 1527.46.

Unfortunately for the Nasdaq, it lies in a far deeper hole. Using the 10% annual rate of return, it would take nearly 10 years for the the tech-heavy index to eclipse its year 2000 peak of 5,048.62.

DESCENDING TRIO. But let's dig a bit deeper. Even though the larger-cap benchmarks have not yet attained "secular" bull status, smaller-cap benchmarks have -- as well as S&P 500 sector and industry indexes.

Take a look at the table below, which shows price changes during three periods: 1) from the S&P 500's record high until it plunged into bear market territory; 2) from bull market top to bear market low; and finally, 3) from bull-market top until the close on Mar. 23, 2005. The table progresses in descending order of performance from March, 2000, through March, 2005.


S&P 500 Sector








S&P SmallCap 600




Consumer Staples








S&P MidCap 400








Health Care












Consumer Discretionary




S&P 500




Telecom. Svcs.




Info. Tech.




We can plainly see that the S&P 500 index remains more than 20% below its all-time high, held under water by the big declines recorded by the Information Technology and Telecommunications Services sectors, and to a lesser extent by the Consumer Discretionary and Utility groups.

TRUSTY CREDO. It may surprise many investors, however, that 6 of the 10 sectors in the S&P 500 already fall into secular bull market territory (4 of the 10 are 10% or more above their Mar. 24, 2000 levels) and that the S&P MidCap 400 and SmallCap 600 indexes also have set new highs recently.

These stats give credence to an adage, "There is always a bull market someplace." Even though broad benchmarks may still fall shy of their all-time highs, a majority of sectors and industries already have reached them.

Required Disclosures

5-STARS (Strong Buy): Total return is expected to outperform the total return of the S&P 500 Index by a wide margin, with shares rising in price on an absolute basis.

4-STARS (Buy): Total return is expected to outperform the total return of the S&P 500 Index, with shares rising in price on an absolute basis.

3-STARS (Hold): Total return is expected to closely approximate the total return of the S&P 500 Index, with shares generally rising in price on an absolute basis.

2-STARS (Sell): Total return is expected to underperform the total return of the S&P 500 Index, and share price is not anticipated to show a gain.

1-STAR (Strong Sell): Total return is expected to underperform the total return of the S&P 500 Index by a wide margin, with shares falling in price on an absolute basis.

As of Dec. 31, 2004, SPIAS and their U.S. research analysts have recommended 26.5% of issuers with buy recommendations, 61.3% with hold recommendations, and 12.2% with sell recommendations.

All of the views expressed in this research report accurately reflect the research analysts' personal views regarding any and all of the subject securities or issuers. No part of the analysts' compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report.

Additional information is available upon request to Standard & Poor's, 55 Water Street, New York, NY 10041.

Other Disclosures

This research report was prepared by Standard & Poor's Investment Advisory Services LLC ("SPIAS"), and may have been provided to you either by: (i) Standard & Poor's under a license agreement with The McGraw-Hill Companies, Inc., which holds the copyright to this report; or (ii) a Standard & Poor's client who is granted a sub-license by Standard & Poor's. This equity research report and recommendations are performed separately from any other analytic activity of Standard & Poor's. Standard & Poor's equity research analysts have no access to non-public information received by other units of Standard & Poor's. Standard & Poor's does not trade in its own account. SPIAS is affiliated with various entities, which may perform services for companies covered by the recommendations in this report. Each such affiliate is operationally independent from SPIAS.


This material is based upon information that we consider to be reliable, but neither SPIAS nor its affiliates warrant its completeness or accuracy, and it should not be relied upon as such. Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Stovall is chief investment strategist for Standard & Poor's

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