Thread: Wall St - Worst Year Since Depression

US STOCKS-Wall St closes out worst year since Depression

Wed Dec 31, 2008 10:20pm GMT

By Chuck Mikolajczak and Chris Sanders

NEW YORK, Dec 31 (Reuters) - Wall Street closed out its worst year since the Great Depression on Wednesday after an unstoppable credit crisis and a dreadful economic outlook left investors questioning their faith in stock markets.

A string of financial disasters culminating in the collapse of Lehman Brothers in the middle of the night in September precipitated the third biggest percentage loss ever for the Dow industrials and the broad S&P 500.

By Nov. 20, the S&P had hit an 11-year low, destroying more than a decade of returns for many Americans and wiping out memories of record highs reached just 13 months earlier.

"It was plain ugly out there," said Kurt Brunner, a portfolio manager with Swarthmore Group in Philadelphia.

"All in all, it's something that I truly hope is once-in-a lifetime thing."

Nonetheless, U.S. stocks managed to close the year on an up note on Wednesday as fresh efforts to stem the recession from Washington lifted equities for the second consecutive session.

For the year, the Dow fell 33.8 percent, for its bleakest year since 1931; the S&P skidded 38.5 percent; and the Nasdaq posted its worst year ever, with a 40.5 percent drop.

When all was said and done, the S&P 500 found itself $5.02 trillion lighter than it was last year.

The bursting of the housing bubble began a long chain of events culminating in the worst credit crisis in a generation.

A deep mistrust grew between banks while growing doubts among investors about the American banking model crippled financial stocks and yanked a key pillar supporting U.S. equity markets.

As the shortage of credit seeped into the broader economy, unemployment rose and consumer spending dived.

Only two stocks in the Dow ended higher for the year: Wal-Mart Stores (WMT.N) and McDonald's Inc (MCD.N). Investors bet discounters like Wal-Mart and inexpensive fast-food restaurants would be the few places consumers spend scarce cash as unemployment soared and the economy crumbled.

The biggest decliner on the Dow was General Motors (GM.N), which fell 87.1 percent for the year as the company was compelled, along with other automakers, to plead for funds from Washington in an attempt to avoid bankruptcy.

On the S&P, the biggest decliner for the year was insurer American International Group (AIG.N), which fell 97.3 percent after agreeing to an $85 billion bailout from the Federal Reserve in exchange for government control.

But the market rose on Wednesday as investors bet that fresh initiatives from Washington will help stave off a deep recession.

Late Tuesday, the U.S. Federal Reserve provided clarity on its plan to reduce mortgage costs and set a goal to buy $500 billion in mortgage-backed securities by mid-2009, a move that surprised analysts in its aggressiveness. For details, see [ID:nN30607943]

By buying back the securities more quickly than expected, investors hope mortgage rates will fall at a faster pace and stimulate the beleaguered housing market.

The Dow Jones industrial average .DJI rose 108 points, or 1.25 percent, to 8,776.39. The Standard & Poor's 500 Index .SPX gained 12.61 points, or 1.42 percent, to 903.25. The Nasdaq Composite Index .IXIC added 26.33 points, or 1.70 percent, to 1,577.03.

For the week, the Dow and Nasdaq rose 3.1 percent while the S&P gained 3.5 percent. For the month, the Dow slid 0.6 percent, the S&P added 0.6 percent and Nasdaq climbed 2.7 percent.

Exxon Mobil (XOM.N) was among the top boosts to the Dow, rising 1.6 percent to $79.83 as oil rose 14 percent to over $44 a barrel. Chevron (CVX.N) rose 0.8 percent to $73.97 while the S&P Energy index .GSPE added 1.3 percent.

The Fed move came a day after lawmakers gave an additional $6 billion to General Motors and its financing arm, GMAC, in another effort to stabilize the auto industry and prevent staggering job losses.

While 2008 has been a brutal year for global markets, investors are hoping the inauguration of President-elect Barack Obama will lay the ground for a recovery.

"There's an optimism that the new team is going to do something," said Michael Cuggino, president and portfolio manager of Permanent Portfolio Funds in San Francisco.

"The impact of fiscal policy will play a huge part in determining how deep and how long the recessionary period is and how robust the recovery period will be."

The Nasdaq was boosted on Wednesday by large-cap tech companies that are seen as better able to withstand the economic crisis due to large cash reserves. Qualcomm Inc (QCOM.O), the wireless chip maker, was up 2.6 percent to $35.83, while BlackBerry maker Research in Motion (RIM.TO)(RIMM.O) rose 4.7 percent to $40.58.

Industrials helped lift the S&P 500, including Pall Corp (PLL.N), Textron (TXT.N) and Dow component Caterpillar Inc (CAT.N). The S&P Industrials index .GSPI gained 2 percent.

Pall, a maker of filtration products, jumped 9.4 percent to $28.43, while Textron surged 7.6 percent to $13.87. Heavy equipment maker Caterpillar rose 2.3 percent to $44.67 as one of the top performers on the Dow.

Housing was another bright spot. Interest rates on U.S. 30-year fixed-rate mortgages dropped for a ninth consecutive week and fell to their lowest level since 1971, according to a survey released by home funding company Freddie Mac. [ID:nN31245632].

The drop in rates boosted demand for home loans, and U.S. mortgage applications held at the highest level in more than five years during the Christmas holiday week, an industry group said on Wednesday.

The Dow Jones U.S. Home Builders index .DJUSHB was up 2.5 percent after the data, led by luxury home builder Toll Brothers (TOL.N), up 4.1 percent to $21.43.

Volume was slim on the New York Stock Exchange, where about 1.2 billion shares changed hands, far below last year's estimated daily average of 1.90 billion. On the Nasdaq, about 1.53 billion shares traded, well below last year's daily average of 2.17 billion.

Advancers outnumbered decliners on the NYSE by a ratio of about 5 to 1, while on the Nasdaq about three stocks rose for every one that fell. (Additional reporting by Leah Schnurr; Editing by Leslie Adler)

http://uk.reuters.com/article/governmen ... 31?sp=true

And this surprises who?

While 2008 has been a brutal year for global markets, investors are hoping the inauguration of President-elect Barack Obama will lay the ground for a recovery.

"There's an optimism that the new team is going to do something," said Michael Cuggino, president and portfolio manager of Permanent Portfolio Funds in San Francisco.

Yeah they are all believe Barack is going to perform a miracle, when they see he cannot that is when it is going to get really bad.