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Investors regroup after Wall Street rout
Wall Street stocks had their worst year since the Great Depression in 2008, with 34 percent to 41 percent losses in major indexes that cut deeply into the wealth and retirement security of Americans.
As a slow-moving downturn in the U.S. economy in the first half of the year turned into a full-fledged collapse in the final four months, the market plunged through a successive series of record-setting losses to levels not seen in years — and dragged down much of the rest of the world with it.
The Dow Jones Industrial Average ended the year down 34 percent while the blue-chip Standard & Poor’s 500 Index lost a stunning 39 percent. Both posted their biggest yearly drops since 1931, during the Depression. The Nasdaq Composite Index fell by a record 41 percent.
See related story:Money woes chill New Year’s cheer
The financial rout — which encompassed not only stocks, but also most bond, commodity and currency markets — left no country or investor untouched. Oil prices fell a record 55 percent after peaking at unprecedented levels over $147 a barrel in July.
European and Asian stock indexes lost on average more than 40 percent, while emerging market giant China’s main stock index plunged 66 percent and Russia’s market collapsed by 75 percent.
For U.S. investors, more than $4 trillion in wealth evaporated seemingly overnight. The stock losses, when combined with quickly eroding home values, left Americans with an estimated $11 trillion less in savings for retirement or economic emergencies like the one in which many suddenly found themselves with the widespread loss of jobs at the end of the year.
In a chain of events that is still reverberating through the economy, the steep and violent losses in financial markets zapped confidence and contributed to the biggest drop in economic output and consumer spending in modern times.
After the battering in 2008, many Wall Street gurus say — or at least hope — that the worst is over.
“2008 has been quite a year, and I think that it is with much relief that we are finally putting it behind us,” said Paul Lennox, corporate treasurer at Custom House, a Canadian investment firm. “Although an economic recession is upon us, the worst of the market’s reaction to the credit and banking meltdown is over, and 2009 should be a year of rebuilding corporate and household balance sheets. Here’s to turning a page in history.”
The stock market tried to muster a lasting rally in its final weeks and ended the year on an up note. News on Wednesday of a drop in mortgage rates to a record low 5.01 percent and a fall in weekly jobless claims sent the Dow rising 108 points to 8,776.
Stocks did stage something of a year-end rally after hitting multiyear lows on Nov. 20. The S&P had plummeted by more than half to an 11-year low on that date, but then rebounded by 20 percent to end the year at 903.
The year-end improvement came amid signs that stressed credit markets were stabilizing after strenuous attempts by the Federal Reserve, Treasury and nearly every other foreign central bank to resuscitate them by showering them with trillions of dollars of loans, capital infusions and interest rate cuts.
The all-out efforts to revive the markets — combined with promises by President-elect Barack Obama to pump another $1 trillion into the economy through a spending and tax-cut package next year — gave hope to investors even as the economic news grew increasingly dire at the end of the year, with everything from housing construction to consumer confidence plummeting to all-time lows.
“Despite what looks like the most severe economic decline since 1982, it appears that investors are starting to build the courage to look over the valley,” said Alexander P. Paris, an analyst at Barrington Research who thinks the market is trying to establish a bottom.
About the Author
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