U.S. stocks may lose around 5% as recession fears grow - MarketWatch

LONDON (MarketWatch) -- U.S. stocks may enter a bear market on Tuesday, with stock futures pointing to losses of roughly 5% after two days of huge selling in overseas markets on fears over a U.S. recession.

Indicators were for a bleak opening -- S&P 500 futures dropped 66 points to 1,259.30 and Nasdaq 100 futures dropped 80.5 points to 1,769.00. Dow industrial futures dropped 531 points to 11,575.

The declines in overseas markets were steeper. Over two days, the Nikkei 225 dropped over 10% in Tokyo, and the DAX-30 fell about 10% in Germany.

While some parallels are being drawn between the crash of 1987 and today, the Dow would have to lose more than 2,700 points to match the percentage loss back then, notes Mark Hulbert.

But U.S. markets are in danger of entering bear-market territory - a loss of over 20% from highs -- as several overseas indexes have done.

Heading into Tuesday, the S&P 500 is nearly 16% below 2007 highs, and the Nasdaq Composite is down about 18%.

Thomas McManus, a strategist at Banc of America Securities, said investors may want to increase their holdings of stocks if the market drops as expected at the open.

"With the S&P 500 index down at least 10% versus a year ago, it makes sense for investors to consider increasing their exposure to equities into the sell-off, gingerly or aggressively, depending on their investment horizon," he said. The brokerage boosted their recommended equity allocation to 65%, up by 5%, and lowered their cash allocation by the same.

"It is the magnitude of the earnings decline that is still in doubt; we concur that - at $1,250 to $1,300 - many stocks in the S&P 500 are priced for a modest recession," he added.

There were some market rumors that the U.S. Federal Reserve might act early with a rate cut, but other observers say the central bank may want to wait a week before making a move.