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Many investors consider a 20% drawdown or more to be a bear market. Based solely on that definition, the table below, courtesy of Morgan Stanley, shows that 42%, or over 200 of the S&P 500 members, are in a bear market. For context, the S&P 500 is only down 4% from its 52-week record high, well short of what anyone would deem a bear market.
The table shows the distribution of drawdowns from 52-week highs by severity, sorted by S&P 500 sub-sector. Not surprisingly, the software industry, with 97% of its companies down by 20% or more, is the worst-performing sector. Behind that are automobiles at 75% and media & entertainment at 63%.
On the other hand, there are no energy stocks in a 20% drawdown bear market, and only 6% of utility stocks are down 20% or more. Staples have also been outperforming, with 14% of members trading in bear market territory.
This analysis is yet another confirmation of the wide dispersion of returns in the constituents of the S&P 500 and yet relatively calm trading in the index itself. For more, check out our article: Calm Market Waters Hide Fierce Undercurrents.
Assessing Private Credit Stress
Following the posting of our article, Private Credit Stress, we received a few emails asking how to track private credit funds. Obviously, the media and its recent barrage of headlines about redemption gates and credit losses is a helpful start. Beyond the media, there are a few market sources worth tracking.
One such indicator of credit is the spread between junk bond yields and US Treasury yields. In the first screenshot below, junk spreads have widened, but as shown in the bottom-right graph, over the longer term, the uptick is not very noticeable. Corporate spreads can be helpful to a degree, but they can be very misleading, as there is significantly more liquidity in the bond markets than in private credit markets.
We can also follow the stocks of publicly traded Business Development Corporations (BDCs). BDCs are investment companies that lend money to smaller and medium-sized businesses. Their clientele and line of business are very similar to those in the private credit space. However, because the BDCs are liquid, they can serve as both a monitor and a hedging vehicle for private credit funds and other investors. Therefore, their prices will be impacted by more than just the credit status of the loans underlying the BDCs.
To help us follow BDCs, we created an equally weighted portfolio of the top BDCs. The third graphic below shows the performance of the BDCs we included in this tracking portfolio since January 2025.
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