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US stocks post steepest yearly decline since 1929

(China Daily/Agencies)
Updated: 2009-01-02 10:52

US 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.

Related readings:  Wall St. closes out on 2008, year of record losses  US officially in recession, Dow falls sharply  Investors grow timid about 2009 market  Investors lose their shirts in meltdown

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 US, 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.

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.

VIX surges

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, 2008 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 US stocks in Toronto. Policy makers "are going to throw everything at it to prevent a deep recession, but it is 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 UK's FTSE 100 Index posted the smallest decrease among the world's 20 biggest markets, slumping 31 percent.

Investor confidence

"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 am slightly optimistic on 2009, but I think there are still some major hurdles to get through, not the least of which is investor psychology. It has 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 US 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.