- The Washington Times - Sunday, January 5, 2003

Stock markets around the world took another major hammering last year. The numbers are startling.
In the United States, the three-year-old bear market took substantial bites from all the major stock indexes in 2002 substantially bigger bites, in fact, than were gobbled in 2001. The Dow Jones industrial average, which includes 30 actively traded blue-chip stocks, fell 16.8 percent last year, more than double its 7.1 percent fall in 2002 and its 6.2 percent decline in 2000. The 2002 performance for the Dow was its worst since 1977. The broader-based Standard & Poor's 500, a market-value weighted index that tracks 500 of the largest publicly traded companies in the United States, plunged 23.4 percent last year, more than 10 percentage points steeper than its 2001 descent of 13 percent and more than double its 10.1 percent decline in 2000. For the S&P; 500, 2002 was the worst year since 1974. The tech-heavy Nasdaq composite plummeted 31.5 percent last year after having dropped 21.1 percent in 2001 and 39.3 percent in 2000.
Not since the 1939-41 period has the broad-based S&P; 500 declined three years in succession. It was the first time the Nasdaq has fallen three years in a row.
Relative to their historic peaks 11,723 for the Dow (January 2000); 1,527 for the S&P; 500 (March 2000); and 5,048 for the Nasdaq (March 2000) by year-end the stock indices had collapsed by 28.8 percent (the Dow), 42.4 percent (S&P; 500) and 73.5 percent (Nasdaq). By Dec. 31, the broadest-based stock index, the Wilshire 5000, had dropped 43 percent since its peak. That represents a $7.4 trillion loss of wealth. By way of perspective, that staggering amount is more than twice the size of the national debt held by the public. And it exceeds $25,000 for each man, woman and child in the nation.
The bear market has been a worldwide phenomenon. Britain's FTSE 100 fell 24.5 percent last year and is down by more than 43 percent from its record high. France's major index (SBF 250) plunged by nearly a third in 2002, ending the year more than 50 percent below its peak. Germany's main index was down 43.9 percent last year and has lost nearly two-thirds of its value from its record high. As for the Neuer Markt, Germany's once-sassy tech-heavy index modeled after the Nasdaq: Well, it went completely kaput last fall, after the combined market value of its 264 listed firms had collapsed by 96 percent since early 2000. Euro-area stocks, measured by the FTSE Ebloc 100, plunged by more than 35 percent in 2002, ending the year 54 percent below their historic highs. Japan's Nikkei 225, which topped out approaching 40,000 more than a dozen years ago, collapsed by another 18.6 percent last year and finished 2002 below 8,600, nearly 80 percent off its peak.
What does 2003 hold in store for the markets? Obviously, nobody knows for certain. (The consensus projection for 2002, as compiled by Business Week, was a 15 percent gain for the S&P; 500, which went on to lose nearly a quarter of its value.)
It may be worth noting, however, that on Dec. 5, 1996, Federal Reserve Chairman Alan Greenspan famously declared that U.S. stock-market levels reflected an "irrational exuberance" among investors. Nevertheless, following three years of an intensely bearish market, the Dow is still 1,900 points, or 30 percent, higher than its Dec. 5, 1996 level. The S&P; 500 is 18 percent higher. Even the decimated Nasdaq ended the year 2.7 percent higher than its irrationally exuberant level. Meanwhile, the market's price-earnings (P/E) ratios, measured against historical standards, remain at relatively high levels. The S&P; 500 P/E ratio is about 27, which is twice as high as its historical level.
As depressing as it is to review the devastation wrought by the three-year-old bear market, an observation made on this page six months ago deserves to be repeated. To wit: Even after one takes into account the market losses since early 2000, for those who have steadily invested in equities over the past 15 to 20 years, the stock market has generated astounding returns. When the greatest bull market in history began on Aug. 13, 1982, the Dow Jones industrial average stood at 777; the S&P; 500 was at 102; and the Nasdaq composite began the day at 160. By Dec. 31, 2002, in the wake of a three-year-old bear market, the Dow had increased by nearly 1,000 percent, while both the S&P; 500 and the Nasdaq reflected advances of about 7,500 percent.
It's all a matter of perspective.

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