Perceived Safe Havens Aren't Always Safe

In bear markets, small fortunes can disappear overnight. As they do, fear of losing even more hard-earned savings begins to drive investment decisions. It's why so many people are now selling stocks at a loss instead of buying them on the cheap.

It's also why people tend to flock to so-called save havens during tough times. Usually, this means an industry like consumer staples, made up of companies that manufacture the everyday things we need: toilet paper, detergent, cereal. It also means health care, the companies that make or distribute medicines. But here's a question: Do the numbers bear out the perceived safety of these sanctuaries?

A look at which sectors did the best and worst during last major bear markets might shed some light. There are caveats, of course. No two bear markets are exactly alike. Some industries have also undergone drastic changes, such as technology, and the roles of pricing and interest rates matter, too. With all that in mind, we asked Russell Investments to dig up performance data from the 2000-02 and 1987 bear markets. Using the sectors that make up the Russell 1000 index, the results are below.

One of the most striking facts: Consumer staples, which hasn't changed all that much over the years, is at the bottom of the heap for both periods. In the 2000-02 bear market, only technology did worse and that's because of the dot-com bubble. In 1987, consumer staples was the worst-performing industry, losing 31%.

Health care, however, lived up to its reputation. It was the third-best performer in both periods. Oil was also tops in both periods, though this time around it's unpopular because of falling commodities prices. Also, even though there were relatively good performers in 1987, no sector was great: All fell by double-digits.

Maybe in this bear market consumer staples will win out. Merrill Lynch sector strategist Brian Belski says fundamentals point him to consumer staples, health care and a new addition to the safe-haven club, technology. But "emotions remain the primary driver of recent stock market performance," Belski said in a recent note. "As a result, we believe fundamentals are being cast aside by investors, a symptom that has traditionally signaled that a bottoming process is at least attempting to develop."