Sunday, May 27, 2018
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Ask not if the bear exists; it's biting Toledo firms

A lot of investors at the end of last week's awful five days on Wall Street were wondering when the bear market would be officially declared.

The Dow Jones industrial average closed below 10,000 for the first time in 10 months - dragging the Dow down more than 14 per cent below its high. The Standard & Poor's 500-stock average closed last week down more than 9 per cent off its high. Only the technology-rich Nasdaq escaped the carnage (through Friday, the Nasdaq was up 13 per cent for the year).

Actually, the stock market as a whole was just catching up to the bear market that has been happening for the last year and a half. It's really a case of "haves" and "have-nots." Although there hasn't been an official bear market since the summer and fall of 1990 - when stocks dropped more than 20 per cent - there has been a selective bear market for quite a while.

As often happens, it hit Toledo before it hit the broad stock market. Eleven large and medium-sized companies based in northwest Ohio and southeast Michigan have market valuations of $400 million to nearly $4 billion each. Ten of the 11 lost share-price value last year, and all 11 are now well below their highs of 1998-1999. The average price of those 11 stocks - 10 traded on the New York Stock Exchange and one on Nasdaq - was down 53 per cent from its high.

Three were down 70 per cent or more: Manor Care, Inc., Owens-Illinois, Inc., and Owens Corning. But Dana Corp., Cooper Tire &Rubber Co., Health Care REIT, Inc., Sky Financial Group, and Cedar Fair L.P. each was down more than 40 per cent, and Tecumseh Products Co., La-Z-Boy, Inc., and Libbey, Inc. each was down more than 30 per cent.

Aberrations? Not really. The Dow Jones components are suffering mightily, too. Through Friday, all 30 of the Dow stocks are down from their 52-week highs, and 22 of the 30 were down more than 20 per cent.

The classic definition of "bear market" is a 20 per cent drop in broad-market prices. Although there have been some close calls in the last decade, the last time that happened was between August and October of 1990.

Only two of the Dow's 30 stocks had single-digit percentage drops off their highs: Intel Corp., down just 3 per cent through Friday, and Hewlett-Packard, down 6 per cent. The other 28 were in double-digit-down territory, topped by Philip Morris, 54 per cent; Caterpillar, 46 per cent, and International Paper, 40 per cent. A large collection of Dow stocks shed 30-40 per cent of their highest value - including McDonald's, Wal-Mart, United Technologies, Johnson & Johnson, DuPont, Honeywell, Coca-Cola, and Merck. Those losing 20-30 per cent of value were AT&T, Procter & Gamble, Kodak, J.P. Morgan, American Express, Home Depot, IBM, Microsoft, Boeing, and General Electric.

Recognize a pattern here? The big, old, well-known companies are disrespected in today's marketplace. Only the glitzy, high-tech companies seem capable of garnering investors' money. One theory is that the small high-tech firms don't require large amounts of bank financing and, therefore, aren't affected by the Fed's rate increases.

Another theory is that we are into a "new economy" that will value technology at the expense of more traditional companies. There may be some truth to that. Of the 30 Dow companies involved in the infamous 1929 stock-market crash, only two are left on the Dow - General Electric and General Motors.

Perhaps we will live to see the day when the Dow is mostly Internet companies, and firms like AT&T, Kodak, and and International Paper will be abandoned as "old economy" stocks not worthy of investor attention. In the meantime, it doesn't matter when, or if, they declare it a bear market. The bear has already eaten us.

Homer Brickey is The Blade's senior business writer.

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