Stock Market Nearing GOP-BUSH Crash

US stocks suffer worst year since Great Depression

By Alistair Gray

The worst annual performance for Wall Street stocks since the Great Depression ended with a modest rally on the final day of trading as the Federal Reserve pushed ahead with its plan to buy mortgage-backed securities.
The central bank’s plan to buy up to $500bn of mortgage bonds by the middle of 2009 helped spur a 1.4 per cent gain on the day for the S&P, which finished 2008 at 903.25.

The Dow Jones Industrial Average and Nasdaq Composite Index added 1.3 per cent to 8,776.39 and 1.7 per cent to 1,577.03, respectively. Volumes were thin as many traders remained away from their desks ahead of the New Year holiday.

For the year, the S&P 500 dropped 38.5 per cent, marking its worst run since a marginally higher drop of 38.6 per cent in 1937. The Dow lost 33.8 per cent, its worst annual decline since the index fell 52.7 per cent in 1931.

“It was beyond most people’s comprehension that such a thing could happen,” said Marc Pado, chief market strategist at Cantor Fitzgerald. “No one thought the short-term could be this destructive.”

The financial sector was the worst performing, down 57 per cent overall, in a year in which several institutions ended up part-owned by the state to prevent a collapse of the system.

Some equity was all but wiped out, such as that of Lehman Brothers, whose collapse in September sent shockwaves throughout financial markets across the globe.

Shares in other banks that survived without a forced sale or bankruptcy nevertheless sustained losses of epic proportions.

Citigroup, which told employees on Wednesday that its chief executive and other executives would forgo 2008 bonuses, finished the year down 77.2 per cent at $6.71. Bank of America sank 67 per cent to $14.08.

Goldman Sachs and Morgan Stanley, among several institutions to become bank holding companies, were off 60.8 per cent and 69.8 for the year, respectively.

As fears over the future of the nation’s financial institutions mounted, so too did concerns of a deep and long-lasting global recession.

The material and energy sectors sank 47.1 per cent and 35.9 per cent respectively in a year of extraordinary highs and lows that ultimately saw the worst annual performance for commodity markets since modern records began.

Alcoa was among the hardest hit, down 69.2 per cent at $11.26. ExxonMobil was the best performing energy stock – but still lost 16 per cent.

Towards the end of the year, the fate of the car industry – vital to the US economy – weighed heavily on investor concerns. Other than AIG, the insurer bailed out by the US government, General Motors was the worst performer on the Dow, off 87.4 per cent for the year.

Shares in GM dropped 15.8 per cent to $3.20 on Wednesday after participation in a debt swap by GMAC, the motor group’s financing arm, fell short of its target.

Traditionally defensive sectors failed to provide much of a safe haven. Consumer staples, health care and utilities were the best performing sectors, yet still lost 17.7 per cent, 24.5 per cent and 31.6 per cent, respectively.

Merck, the pharmaceuticals group, lost 47.7 per cent over the year.

Other well known blue chips also endured huge falls as fears grew that companies could find difficulty securing financing and earnings would be hit by plummeting demand. Boeing and Microsoft tumbled 51.7 per cent and 46.2 per cent respectively over the year.

Despite the carnage across much of the market, some stand out names enjoyed double digit growth. Wal-Mart was one of two stocks on the Dow Jones Industrial Average to find positive territory, up 18 per cent at $56.06. The other, McDonald’s, rose 5.6 per cent over the year to $62.19.

Yet the year’s best performers were merger and acquisition targets, such as Wrigley, acquired by Mars; Anheuser-Busch, purchased by InBev; and UST, bought by Altria.

The S&P advanced 20 per cent from an 11 year low hit in November in a so-called ‘Santa-Claus rally’ towards the end of the year.

Volatility soared to record levels in 2009. The closely-watched Chicago Board Options Exchange Volatility Index, known as Wall Street’s fear gauge, twice jumped above 80 towards the end of the year, nearly double previous highs.


Copyright The Financial Times Limited 2009

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