By Michael Wursthorn and Akane Otani 

Dozens of stocks remain stuck in bear-market territory even as the U.S. stock market has charged to records, reflecting a disconnect that shows a robust economy hasn't offset trade jitters for many American conglomerates.

The global trade fight has weighed particularly hard on shares of industrials and materials companies, which account for more than one-fifth of the 80 stocks in the S&P 500 that have tumbled at least 20% from their 52-week highs -- the common definition of a bear market.

Motorcycle manufacturer Harley-Davidson Inc., appliance maker Whirlpool Corp., tool company Stanley Black & Decker Inc. and machinery builder Caterpillar Inc. are among the biggest stocks that have slumped more than 20% largely due to trade-related woes. Many of the companies that missed out on the broader rally have said trade tensions have raised their costs, damped their profit outlooks or forced them to scrap projects.

Despite those stumbles, the broader market has recovered from the inflation- and trade-fueled volatility that put the nine-year rally on hold for most of 2018. The S&P 500 closed Friday a whisker short of Thursday's record, while the Dow Jones Industrial Average ended at an all-time high, finishing its best week since mid-July.

Investors have ranked a trade war as the top tail risk to the markets for four consecutive months, Bank of America Merrill Lynch found in its September survey of global fund managers. Fears that tighter trade policies could crimp growth also have hit fund managers' global outlooks, with 24% of investors expecting global growth to slow in the next year, up from 7% in August.

"There's a number of money managers who've been hesitant to be involved with the [companies] that are going to be potentially affected by the tariffs, whether they'll be able to export fewer goods or be buying less from China," said Mark Grant, managing director and chief global strategist at B. Riley FBR Inc.

Many of the firms that investors say have been most vulnerable to the trade rift fall in the industrial and materials sectors.

Among some of the hard-hit industrials stocks, engine maker Cummins Inc. has fallen 32% from its 52-week high, hit by 25% tariffs on the small diesel engines and components it imports from its plants in China. Stanley Black & Decker, which has had to weigh replacing U.S. suppliers with foreign ones because of steel and aluminum tariffs, has fallen 25% from its 52-week high.

Materials companies, meanwhile, have suffered as the cloudy outlook for global growth has sent copper prices lower. Newmont Mining Corp. has fallen 29% from its high, while Freeport-McMoRan Inc. has lost 35%.

Auto makers and retailers that cater to drivers are another group of laggards. Ford Motor Co., down 30% from its 52-week high, earlier in the month scrapped plans to import its Focus vehicle to the U.S. from China. BorgWarner Inc. remains firmly stuck in bear-market territory and is down 11% so far this year. This month, the auto-parts supplier cut its earnings and sales outlooks for the year, citing weaker industry volumes in China, as well as "short-term issues" in Europe.

To be sure, some of the stocks that have fallen into bear-market territory, like bricks-and-mortar retailers, have struggled because of industrywide pressures -- things that have had little to do with trade. General Mills Inc., down 32% from its trailing year high, has struggled to reverse stagnating sales as consumers have abandoned its snacks and yogurt offerings for brands offering healthier alternatives. J.M. Smucker Co. has faced similar pressures; its shares are down 23% from their 52-week highs.

Still, even with dozens of stocks struggling to break out of bear-market territory, the U.S. stock market remains well above its peers.

Hong Kong's Hang Seng Index fell into bear-market territory earlier this month and remains down 6.6% for the year, with trade concerns and a stronger U.S. dollar hurting the index and other developing economies. China's benchmark Shanghai Composite and MSCI's flagship emerging-markets index both have suffered drawdowns of more than 20% from recent highs.

One reason why the U.S. stock market has been able to keep driving higher is that investors have bet on a handful of dominant technology companies weathering the fallout from tighter trade policies.

Shares of Apple Inc. and Amazon.com Inc. are responsible for nearly 30% of the S&P 500's 9.6% gain so far this year, according to S&P Dow Jones Indices.

However, analysts caution that while investors have been pricing the risk of a trade war into shares of manufacturers, mining firms, home builders and others, they mostly have ignored the glaring risks associated with major tech companies, such as potential punitive measures that could affect Apple's manufacturing in China or cost increases that could hurt Amazon's e-commerce sales. That puts the S&P 500's narrow leadership at risk of a sharp pullback if trade tensions reach a boiling point, similar to the swift correction that stocks suffered in February on worries about a potential pickup in inflation.

Those companies have already showed some signs of stress in recent sessions due to concerns of new government regulation and the potential impact protectionist policies could have on tech manufacturers. Tech stocks in the S&P 500 are down 1.2% in September, on pace for their biggest monthly loss since March.

Apple is "the No. 1 company exposed to trade," said Michael O'Rourke, chief market strategist for JonesTrading LLC. "Until people see the definite negative out there, people will ride this market out as long as they can. That's representative of a very large problem."

(END) Dow Jones Newswires

September 24, 2018 05:44 ET (09:44 GMT)

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