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| Currency | US Dollar |
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| Japanese Yen to US Dollar | 0.011100 |
| Canadian Dollar to US Dollar | 0.930600 |
Few investors will mourn the passing of 2008. For good reason.
The Dow Jones Industrial Average fell 33.8%, its worst drubbing since 1931 and its third-worst year ever. The Standard & Poor's 500 Index fell 38.6%, its worst performance since 1937 and third-worst loss.
The Nasdaq Composite Index, established in 1971, lost 40.5%, its worst year ever -- even worse than after the dot-com bust.
Next year may not be anything like 2008 and could even see a rebound. But there are enough minefields facing both the economy and investors that deep caution will be the watchword.
The housing industry still hasn't bottomed, and the year-old recession is likely to be the worst since the 1970s. Meanwhile the fates of General Motors (GM, news, msgs), Ford Motor (F, news, msgs) and Chrysler are problematic.
Yet a new administration takes over in three weeks, with promises of a big stimulus package to jump-start the economy. An administration's first year is often good for stocks.
Oh, what a miserable year
The Crash of 2008 was just plain ugly. Consider:- The Dow's loss has been exceeded only by a 53% loss in 1931 and a 38% loss in 1907. It was slightly worse than its loss in 1930.
- The blue-chip index suffered its biggest one-day point loss -- 778 points on Sept. 29 -- and its biggest rebound -- 936 points -- 11 trading sessions later, on Oct. 13.
- The S&P 500 briefly dropped to levels not seen since April 1997.
- Only two of the 30 stocks in the Dow showed gains on the year: Wal-Mart Stores (WMT, news, msgs), up 18%, and McDonald's (MCD, news, msgs), up 5.6%. The remaining Dow stocks lost at least 10%. The biggest loser: General Motors, down 87.1%.
- Only 24 S&P 500 stocks were up for the year, led by Family Dollar Stores (FDO, news, msgs), a Wal-Mart rival, up 33.9%%. Wal-Mart was the sixth-best S&P 500 stock. McDonald's was 16th.
- Some heretofore invincible stocks like Apple (AAPL, news, msgs) and Google (GOOG, news, msgs) were battered. Apple fell 57%; Google dropped 55.5%.
- Crude oil hit $147 a barrel in July, and the national average price of gasoline topped out at $4.11. Then both crashed, taking energy stocks with them. Oil stocks, which jumped 31% in 2007, fell 37% in 2008.
But nothing compares with the disaster that befell banks, brokerages and insurance companies, threatening the global financial system.
Investment banks Bear Stearns and Lehman Bros. (LEHMQ, news, msgs) both failed. Washington Mutual (WAMUQ, news, msgs), the nation's largest savings bank, was sold to JPMorgan Chase (JPM, news, msgs) after its shares collapsed.
| Year | Dow close | % chg. | Year | Dow close | % chg. |
|---|---|---|---|---|---|
| 1931 | 77.90 | -52.67% | 1937 | 120.85 | -32.82% |
| 1907 | 58.75 | -37.73% | 1974 | 616.24 | -27.57% |
| 2008 | 8,776.39 | -33.84% | 1903 | 49.11 | -23.98% |
| 1930 | 164.58 | -33.77% | 1932 | 59.93 | -23.07% |
| 1920 | 71.95 | -32.90% | 1917 | 74.38 | -21.71% |
Merrill Lynch, possibly the world's best-known stock brokerage, agreed to sell out to Bank of America (BAC, news, msgs). That deal was to close today.
The Treasury Department took over Freddie Mac (FRE, news, msgs) and Fannie Mae (FNM, news, msgs), the largest suppliers of mortgage capital to the housing industry. A week later, the Federal Reserve topped that by taking control of American International Group (AIG, news, msgs), the world's largest insurance company, in exchange for $122.8 billion in emergency loans. AIG was kicked out of the Dow but remained in the S&P 500, where it was the biggest loser, down 97.3% to $1.57.
- Top Stocks blog: Was the short ban the SEC’s biggest mistake?
Citigroup (C, news, msgs) required a direct government investment of $20 billion and the government's pledge to back $306 billion in loans and securities. The stock fell 78% this year.
Congress was persuaded to approve $700 billion in emergency aid for the financial system.
The numbers say a rebound is possible
Why could stocks rise in 2009? Because 2008 was so awful, plus several stronger reasons for optimism:- Stocks are relatively cheap. The S&P 500 is how trading at 25% under its 200-day moving average, something not seen since October 1974 and October 1987, Jeffrey Saut of Raymond James noted recently. In the 18 months after each low, the index jumped more than 50%.
- The Dow, the S&P 500 and the Nasdaq rose 14.8%, 18.4% and 17.8% from their closing lows on Nov. 20.
- Interest rates are low -- a reflection of the fright many investors had about anything other than U.S. government securities. They are likely to stay that way for a while, thanks to the Federal Reserve's rate cuts this year. The weekly Freddie Mac survey today showed the rate on a 30-year fixed-rate mortgage at 5.1%, down from 5.14% last week and 6.17% a year ago. The rate is at its lowest level since late 2004.
- The big drop in oil prices has put cash into consumers' pockets.
The fuel needed for 2009
But the numbers aren't going to help stocks by themselves. Here are some key ingredients needed for a rally:- Top Stocks blog: Year in review -- big companies in bankruptcy
No surprises. The big problem with 2008 was that corporate chieftain after corporate chieftain -- especially those of financial companies -- announced their problems were very nearly fixed -- only to see the problems get much worse.
How the indexes fared
Dow Jones Industrial Average
Standard & Poor's 500 Index
A bottom to housing. One piece of the bottom is in place. Homebuilders have substantially cut their construction plans, and inventories of unsold homes have started to shrink.
The glut of existing homes will take more time. There's hope for stronger efforts to prevent foreclosures and get foreclosed properties into new hands.
- Top Stocks blog: Why earnings are about to get worse
Stable commodity prices. An economy can’t grow if the basic commodities that underpin daily activity are shooting higher.
Along with oil and gasoline, prices for food, fertilizers and metals surged in the first half of the year. Then many simply collapsed.
Signs of employment stability. The national unemployment rate is likely to push higher in the first half of 2009, perhaps longer. Investors are likely to start buying stocks if they sense that rate is coming down.
One last point
The Dow ended 2008 off 38% from its Oct. 9, 2007 peak. It had been down nearly 47% from the peak on Nov. 20.But the loss is modest compared with what happened after it peaked in 1929. It lost 89% of its value before finally bottoming in mid-1932.
One hopes that the U.S. market doesn't threaten that record.
| Today | Chg. | 2008 chg. | Today | Chg. | 2008 chg. | ||
|---|---|---|---|---|---|---|---|
| Dow winners | S&P 500 winners | ||||||
| Wal-Mart Stores | $56.06 | 1.83% | 17.95% | Family Dollar Stores | $26.07 | 2.20% | 33.91% |
| McDonald's | $62.19 | 0.73% | 5.57% | UST | $69.38 | 0.27% | 26.51% |
| Johnson & Johnson | $59.83 | 1.12% | -10.30% | Amgen | $57.75 | 0.28% | 24.35% |
| Home Depot | $23.02 | -0.39% | -14.55% | H&R Block | $22.72 | 1.75% | 21.70% |
| Exxon Mobil | $79.83 | 1.58% | -14.79% | Celgene | $55.28 | 1.21% | 19.69% |
| Procter & Gamble | $61.82 | 1.15% | -15.80% | Wal-Mart Stores | $56.06 | 1.83% | 17.95% |
| Kraft Foods | $26.85 | 0.94% | -17.71% | AutoZone | $139.47 | 1.62% | 16.65% |
| Chevron | $73.97 | 0.80% | -20.74% | Rohm and Haas | $61.79 | 3.50% | 15.88% |
| Pfizer | $17.71 | -0.23% | -22.09% | Hasbro | $29.17 | 0.52% | 14.19% |
| IBM | $84.16 | 0.73% | -22.15% | Gilead Sciences | $51.14 | -0.37% | 12.15% |
| Dow losers | S&P 500 losers | ||||||
| Intel | $14.66 | -0.20% | -45.01% | MEMC Electronic Materials | $14.28 | 4.01% | -83.86% |
| Microsoft | $19.44 | 0.52% | -45.39% | Wachovia | $5.54 | -3.32% | -85.43% |
| Merck | $30.40 | 2.70% | -47.69% | Sprint Nextel | $1.83 | -4.19% | -86.06% |
| Boeing | $42.67 | 3.44% | -51.21% | General Motors | $3.20 | -15.79% | -87.14% |
| General Electric | $16.20 | 2.40% | -56.30% | Developers Diversified Realty | $4.88 | 7.96% | -87.26% |
| American Express | $18.55 | 3.06% | -64.34% | Genworth Financial | $2.83 | -0.35% | -88.88% |
| Bank of America | $14.08 | 6.34% | -65.87% | National City | $1.81 | 0.00% | -89.00% |
| Alcoa | $11.26 | 5.33% | -69.19% | American Capital | $3.24 | 10.20% | -90.17% |
| Citigroup | $6.71 | -1.32% | -77.21% | XL Capital | $3.70 | 4.23% | -92.65% |
| General Motors | $3.20 | -15.79% | -87.14% | American International Group | $1.57 | 0.64% | -97.31% |
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