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2002 worst 25 years { December 31 2002 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A33759-2000Jun21.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A33759-2000Jun21.html
Dow Jones Closes With Worst Annual Loss in 25 Years
By Jerry Knight
Washington Post Staff Writer
Tuesday, December 31, 2002; 4:20 PM
The Dow Jones industrial average today closed the books for 2002 with its worst annual loss in 25 years, giving Wall Street its first three-year losing streak since before World War II.
The Dow ended the year down a little more than 17 percent, a fraction of a percentage point better than its 17.27 percent loss in 1977.
Only three of the 30 Dow stocks--Eastman Kodak, Proctor & Gamble and 3M Corp--were up for the year, but the blue chip index still was holding its ground better than the Standard & Poor's 500 stock index or the Nasdaq Stock Market composite index.
The S&P lost almost 24 percent--its worst year since 1974--and the Nasdaq composite plunged 31 percent, which wasn't as bad as its 39 percent bust two years ago.
The vast majority of Wall Street wizards are predicting the market will make gains next year, but those forecasters were also counting on stock prices to rise this year.
"A year ago, although the country was still reeling from the tragedy of Sept. 11, renewed optimism was evident," recalled James Paulson, chief investment officer of Wells Capital Management. "Today there is much more apprehension surrounding the new year."
Admitting to "some anxiousness" about it, Paulson still joins the ranks of the amateur and professional prognosticators who are counting on the market to move ahead in 2003.
The amateurs are far more bullish than the pros. A survey out today from WhisperNumber.com found 50 percent of private investors are counting on the Dow to end next year above 10,000--which would be 20 percent above where it closed today.
Most professionals are expecting smaller gains--many see only a single-digit advance--and some caution against assuming that the three-year-long stock market slide has ended.
Steven Hochberg, chief market analyst for the Elliott Wave International newsletter group, is among those who think the bear market will continue at least into the first quarter of next year.
Hochberg contends that professionals and the public are too bullish--a sign the market has yet to bottom--and many stocks are still overpriced based on the profits the companies are expected to earn. Although the indexes have all recovered significantly from their lows in early October, Hochberg contends this is just another "bear market rally" and like previous recoveries "really is the harbinger for a significant fall."
Another drop in the market next year might be a harbinger of far more serious trouble ahead for the economy. Stocks are down for three years in a row for the first time since 1939, 1940 and 1940 and have fallen four consecutive years only once--from 1929 to 1932 when the U.S. fell into the Great Depression.
Economist Mickey Levy of Bank of America says this is the first time ever that stock prices have fallen for three consecutive years in every major market in the world.
The most significant measure of how far stock prices have fallen is not the cumulative loss during the past three years, but the retreat since the market peaked in the early spring of 2000.
Since the technology stock bubble burst 33 months ago, the Nasdaq Stock Market composite has lost 73 percent of its value. The S&P 500--which gives a more representative sample of American corporations--is down 45 percent. Even the premier companies in the Dow Jones industrials have lost 28 percent.
The over-riding reason for the retreat is the collapse of the hyper-inflated market that drove stocks prices to previously unheard of levels compared to the profits the companies were making. The conventional standards of profits to stock prices were obsolete, the bulls proclaimed, and under the new rules the Dow would hit 36,000.
With the Dow back in the 8,000 range and the ratio of prices to profits back into their pre-bubble ranges, those predictions look silly.
The collapse of the bubble itself has hobbled the economy, raising fears of the same kind of deflation that came with the Depression.
Debate among economists over whether deflation could return has spooked some investors, but lately the market has been worried about more immediate dangers: the threat of war with Iraq, North Korea's nuclear bluster and waning consumer confidence.
This morning the markets opened with the gains they almost always show on the final trading day of the year, but turned negative the moment news of declining consumer confidence hit the financial wires.
By the closing bell, the traditional end of-the year buying had kicked in and the Dow and S&P moved just barely into the positive territory. The Dow was up nearly 9 points for the day, closing at 8,341.63. The S&P gained less than a point to 879.82. The Nasdaq was still down about 4 points at 1,335.50.
© 2002 The Washington Post Company
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