Monday, October 13, 2008

The Stock Market's Biggest Losers

The Stock Markets Biggest Losers

Stocks hit their peak in early October, and since then the damage has been broad and deep. More than 80% of companies in the Standard & Poor's 500-stock index have fallen in value, according to data provider Capital IQ.

But this is not the worst stock market slump this decade. To gain some historical perspective, BusinessWeek asked Capital IQ (which, like BusinessWeek, is owned by The McGraw-Hill Companies (MHP)) to analyze both the current stock market since its peak in October, 2007, and also the last bear market, when stocks peaked on Mar. 24, 2000, and then, after the tech bubble burst, hit bottom on Oct. 9, 2002.

By most measures, the last bear market was far worse than our current correction—at least so far. Losing stocks in the S&P 500 recorded $5.5 trillion in market cap declines from 2000 to 2002, amounting to a 58% drop in their market cap. In the current market, losing stocks in the S&P 500 have seen their market caps shrink by $2.3 trillion, a 19.2% drop.

While earlier this decade stocks were tripped up by the tech bust, a recession, and the September 11 terrorist attacks, now the market is dealing with a credit crisis, a housing slowdown, high energy and commodity prices, and a slowing economy. Our current list of troubles may sound scary, but judging by the stock market, the current crisis has a long way to go before it gets as bad as our last.

Bad News Bears

However, the current bear market is worse because it has affected more stocks. In the last slump, only about half the S&P 500 companies recorded losses in market cap. But since October, more than 80% of the S&P 500 companies have racked up losses of one size or another.

The losses of 2000 to 2002 were huge, but mostly concentrated in technology stocks. Many other companies, including financial-services, retail, health-care, and industrial names, actually prospered.

In the current market, not surprisingly, the biggest market cap losers are in the financial industry. Bear Stearns (BSC), for example, was the biggest loser in the S&P 500 from Oct. 9, 2007, to Apr. 22, 2008, says Capital IQ. The bank and brokerage house lost more than 90% of its value, or $16.7 billion in market capitalization.

Widespread Panic

Other top losers include National City (NCC) (market cap losses of 76% and $12.4 billion); bond insurer Ambac Financial (ABK) (75% and $5.24 billion); mortgage giant Countrywide Financial (CFC) (70.74% and $7.88 billion); and online broker E*Trade Financial (ETFC) (70.5% and $4.2 billion). In fact, of the top 25 market cap losers in the S&P 500, 16 were financial companies.

That's not surprising, because disruptions in the credit markets started Wall Street's recent run of bad luck. Worries about bad mortgage debt have caused investors to flee from a vast array of financial stocks.

Still, the losses over the last six months have been surprisingly widespread. Telecom, consumer discretionary, information technology, and health-care companies were also among the top losers of market cap. With the possible exception of energy, almost no sector has been unaffected. (See the slide show for more on the biggest losers of market value in the past six months.)

Some Winners

The big winners since the October peak in the S&P 500 are oil and gas companies including Hess (HES) (market cap gain of $16.3 billion, or 77.8%, in the past six months) and EOG Resources (EOG) ($14.9 billion and 77.7%). Another big winner is Wal-Mart (WMT), which has added $39.7 billion to its market capitalization, a 21.6% gain, as beleaguered consumers flock to the discount retailer.

A worry for investors is that the current stock market slide will continue. If the economy enters a serious recession, market losses could deepen and begin to approach the severity of the last bear market.

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