Posted on 01/01/2003 3:39:50 AM PST by sarcasm
Two words for 2002, another year when the bears continued to run wild on Wall Street. Not even a third-quarter rally could save the stock market from a third straight year of double-digit percentage losses, something not seen since the Great Depression.
Tuesday's final day of trading before the new year was lackluster like so many others in the past month. It reflected the major concerns affecting the market as 2003 begins - dwindling consumer confidence, rising prices at the gas pump, fears of war.
"All investors, neophyte and experienced alike, suffered during the most severe bear market since the Great Depression," said Alfred Goldman, chief strategist for A.G. Edwards & Sons.
The numbers are staggering:
• For the year, the Standard & Poor's 500 index lost 268 points, or 23.4 percent from 2001. The Dow Jones industrial average was off 1,680 points, or 16.8 percent. The Nasdaq composite lost 615 points, or 31.5 percent.
• It was the Dow's worst year since 1977, when it fell 17.3 percent. For the S&P, it was the worst year since 1974, a 29.7 percent loss. It was the Nasdaq's second-worst year, trailing only 2000, when the tech-heavy index lost 39.3 percent.
• All 10 of the S&P 500's industry groups fell in 2002; computer and software shares were down nearly 40 percent.
• Of the Dow's 30 members, only Eastman Kodak, Procter & Gamble and 3M Co. gained in 2002.
What will Thursday's opening bell bring? Of note: Every down January in the S&P 500 since 1950 has preceded a flat market, or a new or extended bear market.
"I'll become particularly bearish if things turn bad in January," said Paul Dickey, financial consultant for A.G. Edwards & Sons in Denver. "January historically is a great indicator for the balance of the year.
"I think everybody's hopeful, but hope is not a good investment strategy."
Hope has been in short supply. December brought no "Santa Claus rally," the euphoria that usually sends stocks upward during the last two weeks of the year. Instead, poor retail earnings reports and announcements of more layoffs at U.S. businesses kept investors jittery, leading the S&P and the Dow to their worst Decembers since 1931. Both were down more than 6 percent for the month. The Nasdaq, meanwhile, had its worst December - off 9.7 percent - since its inception in 1971.
Smaller indexes were pained as well in the past year: The Russell 2000 index of small-cap stocks and the Wilshire 5000 both fell around 22 percent.
And it wasn't just U.S. markets. Bloomberg News reports that the 16 indexes in Europe and Africa were down a minimum of 23 percent for the past year; the 18 Pacific Rim and Asia indexes each dropped more than 10 percent.
"We were bound to get some kind of correction," said Fred Taylor, a principal with NorthStar Investment Advisers in Denver, noting how high-flying the markets were before 2000. "But I don't think we expected a bear market of this magnitude for this long."
"It was very frustrating for us to go through a year like this, when stock research didn't matter as much as the headline of the day," said Kim Goodwin, chief investment officer at State Street Research & Management Co. "Bad news really did pressure the market all year. The story of 2002 is a drumbeat of pessimism that held stock prices down."
The last time it was this bad? From 1939 through 1941, the Dow fell more than 28 percent, though that was a drop of just 44 points. Over the past three years, the Dow has fallen 27.4 percent - a whopping 3,155 points.
And consider this - the Nasdaq has dropped 67 percent since the end of 1999; the S&P, perhaps the best barometer of market climate, has fallen 40 percent.
"It's been a terrible year, particularly on top of 2000 and 2001 being down years. It's really unprecedented territory," said Mike Kayes, chief investment officer at Eastover Capital in Charlotte, N.C.
The losses have decimated 401(k) plans and postponed retirement for hundreds of thousands of Americans. Billions of dollars have poured out of mutual funds - $20 billion just out of stock funds through November, according to fund trade association the Investment Company Institute, the first net outflow since 1988.
Money-market mutual funds saw outflows of more than $10 billion in 2002, this after more than $400 billion poured into the funds in 2001.
As Americans exited stocks, they sought refuge in savings. The Federal Deposit Insurance Corp., in its most recent data, said savings deposits at U.S. commercial banks rose by $325.4 billion (19.2 percent) from June 2001 to June 2002. Savings and loans saw a 7 percent rise in deposits - $51.2 billion - over the same period.
Need more market negatives? According to fund tracker Lipper Inc., 96 percent of stock-based funds declined in 2002, based on preliminary data. Equity funds were down 20.25 percent, their biggest drop since a 24.72 percent decline in 1974.
Opinions differ as to whether the end is in sight. Alexander Paris of Barrington Research is among those who think the losing cycle will end this year.
"The last time the market fell for four years in a row was in 1929-1933 and, by no stretch of the imagination, do we see economic conditions comparable to that in the period ahead," he told CBS MarketWatch. "So strategists who guessed wrong for the last three years should have the odds with them for 2003."
People need to be "more diversified, more conservative" with their portfolios, said Taylor of Northstar. "If investors are in it for the long haul, they have to put money back into stocks whether they like it or not."
National analysts like UBS' Tracy Eichler; Goldman of A.G. Edwards; Joe Battapaglia of Ryan Beck & Co.; and Global Partners Securities' Peter Cardillo predict market gains of 8.5 percent to more than 20 percent.
But there are warning signs. Unemployment was 6 percent in November, matching an eight-year high set in April; some economists say it could hit 6.5 percent by mid-2003.
The New York-based Conference Board, in its consumer confidence report Tuesday, said its surveys showed Americans have negative expectations for job creation, income growth and the state of the economy, although there was a slight uptick in the number who think business conditions will improve in the coming months.
Said Taylor: "People are nervous. You pick up the paper, and there's negative (economic) news every day. It affects the psyche."
Even those analysts who predict better things in 2003 are cautious.
"You've got to look forward, not behind," said Dickey of A.G. Edwards. "But I'm prepared for a tough year."
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