Jan. 1 (Bloomberg) — U.S. stocks plunged the most in 2008 since the Great Depression as financial shares collapsed, energy and metal producers tumbled and the world’s biggest economy suffered a yearlong recession.
Citigroup Inc., Bank of America Corp. and Goldman Sachs Group Inc. retreated more than 60 percent as 80 out of the 84 financial institutions in the Standard & Poor’s 500 Index declined. Exxon Mobil Corp. and Freeport-McMoRan Copper & Gold Inc. fell as the Reuters/Jefferies CRB Index of 19 raw materials dropped a record 36 percent. Caterpillar Inc. sank 38 percent as the U.S., Europe and Japan experienced the first simultaneous contractions since World War II.
“They will write about this year for a long time,” Duncan Niederauer, chief executive officer of New York Stock Exchange owner NYSE Euronext, said in an interview. “It’s been, in one word, tiring.”
The S&P 500 decreased 38.5 percent, the most since the 38.6 percent plunge in 1937, to 903.25 and sank to an 11-year low of 752.44 on Nov. 20. Volatility increased, with the index rising or falling 5 percent in a single day 18 times. The Dow Jones Industrial Average slumped 34 percent to 8,776.39 for the steepest drop since 1931.
The market gained yesterday, with all 10 industries in the S&P 500 advancing, after fewer Americans filed for jobless benefits and the Treasury said it will expand aid to more companies in the car industry.
The Chicago Board Options Exchange Volatility Index, known as Wall Street’s fear gauge, jumped 78 percent to 40. The so- called VIX, a measure of how much investors are paying for insurance from stock declines in the options market, had never exceeded 50 before October. Its close of 80.86 on Nov. 20 was the highest in its 19-year history.
At its lowest closing level of 2008 on Nov. 20, the S&P 500 was down 49 percent for the year and 52 percent from its Oct. 9, 2007, record of 1,565.15. The plunge came as more than $1 trillion in credit-related losses at global financial companies triggered a global recession.
The S&P 500 has rebounded 20 percent since Nov. 20. The gains were propelled by the government’s rescue of Citigroup Inc., President-elect Barack Obama’s pledge to spend the most on infrastructure projects since the 1950s and the Federal Reserve’s reduction in its benchmark interest rate to as low as zero.
Credit Markets Closed
“What’s going to determine the equity market is how deep the recession is going to be,” said Noman Ali, a money manager at MFC Global Investment Management, which oversees $20 billion of U.S. stocks in Toronto. Policy makers “are going to throw everything at it to prevent a deep recession, but it’s still going to be pretty bad because credit markets are still closed and investors are not taking any risk.”
Tunisia was the only market out of 69 in MSCI Inc. indexes that rose in 2008. Twenty-eight national benchmarks lost more than half their value, including Russia’s 67 percent drop, China’s 66 percent retreat and India’s 52 percent decrease. The U.K.’s FTSE 100 Index posted the smallest decrease among the world’s 20 biggest markets, slumping 31 percent.
China’s CSI 300 Index fell for an eighth straight day yesterday, capping the gauge’s first annual decline since it was introduced in April 2005. The index tracking yuan-denominated A shares tumbled as economic growth cooled and exports shrank. Stock indexes in the other three so-called BRIC nations –Brazil, Russia and India — fell as the global economic slump cut demand for commodities and investors shunned riskier assets.
“Most of us in the market are going to be very happy for the calendar to tick over to 2009,” said James Gaul, a money manager at Boston Advisors LLC, which oversees about $1.5 billion in Boston. “I’m slightly optimistic on 2009, but I think there’s still some major hurdles to get through, not the least of which is investor psychology. It’s been so bad, and people have gotten burned in such a severe way.”
Financial companies tumbled the most among the 10 main industries in the S&P 500, falling 57 percent collectively for the worst drop in the 19-year history of the index tracking the group. The retreat was driven by banks racking up asset writedowns and credit losses stemming from the 2007 collapse of the subprime-mortgage market.
Lehman Brothers Holdings Inc., once the nation’s fourth- biggest securities firm, filed the largest U.S. bankruptcy in September after its shares lost almost all their value. Its rivals Merrill Lynch & Co. and Bear Stearns Cos. were forced into takeovers to avoid collapse, while Goldman Sachs Group Inc. and Morgan Stanley converted to bank holding companies as investors lost confidence in firms that depend on debt-market financing. Morgan Stanley shares slid 70 percent in 2008, while Goldman Sachs fell 61 percent.
“Credit markets really set the tone for market behavior in 2008. We expect that to continue to be the case in 2009,” Craig Peckham, equity trading strategist at Jefferies & Co. in New York, told Bloomberg Television. “I’m not convinced that we’ve seen the lows for the market yet” as the recession “is going to be more prolonged than the consensus believes at this point.”
Insurers crippled by losses on investments and contracts protecting against debt defaults were among the market’s biggest losers this year. American International Group Inc., the world’s largest insurer before it was put into government conservatorship, lost 97 percent.
Citigroup dropped 77 percent to $6.71. Bank of America lost 66 percent to $14.08.
The S&P 500 Energy Index slumped 36 percent, while the measure of raw-material companies fell 47 percent. Exxon fell 15 percent to $79.83, and Freeport tumbled 76 percent to $24.44. Crude oil futures retreated a record 54 percent to $44.60 a barrel in 2008. They reached an all-time high of $145.29 in July.
Automakers slumped as the slowing economy pushed General Motors Corp. to the brink of bankruptcy, sending the nation’s largest car company down 87 percent and prompting the government to issue emergency loans to keep the company solvent. GM’s U.S. sales tumbled 22 percent during the first 11 months of the year, which the company blamed on buyers’ dwindling access to credit.
Companies that sell discounted goods posted some of the only gains after consumers reined in spending as the yearlong recession deepened. Family Dollar Stores Inc. jumped 36 percent for the biggest advance in the S&P 500 in 2008. Wal-Mart Stores Inc., the world’s largest retailer, climbed 18 percent and fast- food chain McDonald’s Corp. increased 5.6 percent for the only 2008 gains in the 30-stock Dow average.
Corporate profits have fallen seven straight quarters, according to the U.S. Bureau of Economic Analysis. Should earnings fall through the first half of 2009, as analysts surveyed by Bloomberg project, it would be the longest streak since the government began tracking quarterly data in 1947.
Takeovers and initial public offerings dwindled as falling share prices and frozen credit markets made terms more onerous. Announced takeovers plunged 43 percent in 2008 to $873 billion from the record $1.54 trillion in 2007, according to data compiled by Bloomberg. Only 43 IPOs raised more than $50 million this year, the fewest since 1979, according to Renaissance Capital’s IPOHome.com.
The S&P 500’s decline in 2008 was the first that exceeded 30 percent since the 39 percent plunge in 1937. The benchmark gauge for U.S. equities lost 23 percent in 2002 and 29.7 percent in 1974, losses that were followed by annual gains of 26 percent and 32 percent, respectively.
Ten of the 11 investment strategists surveyed by Bloomberg expect the S&P 500 to rise next year. The forecasts range from a drop to 874 at Barclays Plc to a gain to 1,300 at UBS AG. The average is 1,056.
Bonds Surge (This is the greatest bubble ever. – Infinite Unknown)
While the global economic slowdown weighed on stocks in 2008, U.S. government bonds posted their best year since 1995 amid speculation the recession will extend into the first half of 2009. The dollar completed its biggest annual decline against the yen in more than two decades, while the euro had its best year against the British pound since its 1999 debut.
Even as the S&P 500 capped its worst year since 1937 and the Dow its worst since 1931, traders on the floor of the New York Stock Exchange paid homage to a decades-old tradition by singing 1905’s “Wait ‘Till the Sun Shines, Nellie.”
To contact the reporter on this story: Elizabeth Stanton in New York at email@example.com.
Last Updated: December 31, 2008 20:17 EST
By Elizabeth Stanton