Let's face it: Opening your third-quarter mutual fund or 401(k) statement will be like dropping a bowling ball on your toe. And let's not even think about the fourth quarter.
As the very stability of the global financial system has been called into question, stock fund investors have had almost nowhere to hide.
If there's a glimmer of good news, it's that many fund managers think, wishfully perhaps, that the market decline could soon burn itself out.
The average U.S. equity fund skidded 10% in the third quarter -- and the damage was minor compared with the brutalization in the eight trading days since the period ended. So far in October, the Standard & Poor's 500 index is down a stunning 23%.
Even foreign stock funds, whose strong gains in recent years provided a much-needed counterbalance to meandering domestic stock performance, were pounded, sinking on average 20.5%.
The brunt of the third-quarter losses came in September as fallout from the subprime mortgage crisis and credit crunch brought down Lehman Bros. Holdings Inc. and the federal government scrambled to prop up other financial heavyweights such as Fannie Mae, Freddie Mac and American International Group Inc.
Concern over the fate of the financial system may have eased a bit at the end of the quarter, but by then the stock market was overtaken by worries about the potential for a severe global recession.
"It was about as bad as a worst-case scenario would have envisioned," said Jeff Cardon, who manages Wasatch Small Cap Growth fund.
And even after the sell-off ends, the economy and the stock market could hover around their lows for months before turning up, many analysts say.
"The stock market has given up big enough chunks over the last three or four weeks that the selling pressure is getting to be exhausted," said Jeff Tyler, a fund manager at mutual fund group American Century Investments. "That said, there are really not a lot of catalysts out there to suggest a turnaround. While the market might stop going down, it's not going up any time in the immediate future."
Investors have responded to the downturn by yanking money from equity funds.
Through Thursday, they had pulled a net $166 billion out of stock funds this year, including $44 billion in September and $48 billion this month, according to TrimTabs Investment Research.
After stuffing $138 billion into international funds last year, they've withdrawn $58 billion this year.
