Blue Chips’ Cautious Tone

This bull market hasn’t surrendered much since it began more than three years ago. But that may be because it hasn’t had a lot to give, at least in the case of blue-chip shares.

The Standard & Poor’s 500 index lost 751 points, or 49%, in its slide from its record high on March 24, 2000, to its bear-market low of 776.76 on Oct. 9, 2002.

Since the low, the index has recovered 490 points, or about two-thirds of what it lost.

Historically, by the time most bull markets have reached their fourth year they’ve recouped all of the previous bear-market loss, says Sam Stovall, investment strategist at S&P; in New York.

The cautious tone of this advance may be a big reason the S&P; hasn’t experienced as much as a 10% correction, or short-term pullback, in three years, Stovall says.

That’s also the view of Jim Paulsen, investment strategist at Wells Capital Management in Minneapolis. Because they’ve been so afraid to overpay for big-name stocks, investors also may feel more comfortable holding on to the shares at these levels, limiting the selling pressure on them, he says.

“Rather than having a 10% correction that makes you honest [about share valuations], we’re honest every day” about blue chips, Paulsen says. “Investors are cautious all the time.”

He remains bullish on the market overall, he says, and particularly on stock groups that would fare best if the global economy continues to expand at a healthy pace, which is his bet.

Those groups include industrial and technology shares, smaller stocks and emerging-market issues, Paulsen says.