2008/2009 Investment Review & Preview : The Year In Review
Thursday, January 01, 2009SUSIE GHARIB: The financial markets celebrated the start of 2009 by taking the day off. So tonight, we'll take stock of where the markets have gone over the past year and where they may be headed in the coming year. Jeff.
JEFF YASTINE: Susie, 2008 will be remembered as one of the worst years in decades for investors, especially if they happened to be invested in stocks. When trading opened a year ago, the Dow Jones Industrial Average stood at just over 13,000, while the NASDAQ Composite was just over 2,600. But during January, recession fears led investors to dump stocks and prices tumbled. It took two interest rate cuts and passage of an economic stimulus package to get them moving higher. February brought oil closing above $100 a barrel for the first time. That and a slowing economy led stocks to lose another 3 percent. March saw wild price swings, as worries over mortgage securities sent the dollar to new lows and gold's price above $1,000. But another interest rate cut helped stocks regain their footing. They continued to move higher in April, despite more bad economic news. Unemployment rose to a two-and-a half year high and new home sales fell to a 17-year low. May brought $130 oil and big rises in food prices. And as inflation concerns grew, consumers and the Dow cut back. Then, as oil went past the $140 a barrel mark in June, the Fed decided to hold interest rates steady. That didn't help stocks, leading to the worst June in Wall Street since 1930. In July, oil and commodities prices began to plunge, but that good news was offset by worries about the financial sector, as Federal regulators seized California thrift Indymac. The dollar regained much of its strength in August and small cap stocks showed some signs of life. But a sell off in financial stocks kept the Dow from gaining ground. Then a series of surprises sent stocks reeling in September. The collapse of Lehman Brothers and the near-failure of other major financial firms threatened the very stability of the financial system. And when Congress rejected a plan to rescue the financial sector, proposed by Treasury Secretary Paulson, the Dow lost 777 points, its biggest one-day drop ever. Passage of that bailout plan a week later did not quell Wall Street's worries. Signs the economic downturn was spreading worldwide sent the Dow below 9,000 and the NASDAQ below 1,700. Only a big rate cut from the Fed led to a brief comeback. Although November began with an Election Day rally, the Obama victory was soon eclipsed by worries over the future of the U.S. auto makers. Skepticism about Detroit's prospects led the markets to reach their lows for the year on November 20. In early December, word of the worst job losses in 34 years raised hopes for passage of a new economic stimulus plan. That and the Fed's decision to lower short-term rates to near zero helped the markets to end the year on a somewhat hopeful note. And to fill us in on the details of the past year's market action, joining us is Sam Stovall, chief investment strategist for Standard & Poor's equity research. Sam, happy New Year and welcome to, welcome back rather to NBR.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Jeff, happy New Year. Good to talk to you again.
YASTINE: Thanks, let's begin by taking a look at the relative performance of the major indexes. And as we can see, it was a pretty ugly year all around.
STOVALL: Absolutely. You actually have to go back to the 1930s to find a calendar year that was as bad as this one.
YASTINE: Now take a look at some of the individual winners and losers last year. We start with the lone gainers among the Dow Industrials, we have Wal-Mart (WMT) and then McDonald's (MCD).
STOVALL: Well, with Wal-Mart you had consumers who were trading down to a more discount environment. And McDonalds, again the situation where consumers were more willing to focus on getting the best bang for their buck.
YASTINE: And turning to big losers, no surprise General Motors (GM) with a huge drop in its stock price.
STOVALL: Well, it certainly did. The share prices suffered from a negative automobile as well as credit market environment. And I think investors are still a bit skeptical that they would be able to avoid bankruptcy rather than simply delaying it.
YASTINE: And then Citicorp (C), a big loser now for the second year in a row.
STOVALL: That's right. And also realizing that their on and off balance sheet of assets is totaling $3 trillion.
YASTINE: Oh my gosh. Turning to the S&P 500, we have a double digit winner. There were some winners on the S&P 500 this year, beginning with Family Dollar Stores (FDO).
STOVALL: Again, a situation in which consumers traded down. But investors were also happy that this company was able to hang on to strong margins even in a difficult retailing environment.
YASTINE: On the flip side, the S&P 500, the big loser, American International Group, AIG, until recently, the nation's largest insurer.
STOVALL: No surprise here. Basically we saw a company that has outsized exposure to the mortgage industry and the credit default swap market that recently had to go to the Federal government for an emergency bailout.
YASTINE: Now let's switch over to the NASDAQ 100. The big winner there was Vertex Pharmaceutical (VRTX), just what they did do to get that kind of a gain.
STOVALL: Vertex benefited from the favorable clinical trial data for its hepatitis C protease inhibitors.
YASTINE: And the big losers in the NASDAQ 100, Liberty (LINTA) got clipped. What did it do wrong?
STOVALL: Well, it suffered from challenging economic headwinds and a competitive online retail environment.
YASTINE: We are now going into the first year of a new president's first term. Is that supposed to be a good year historically, traditionally for stocks?
STOVALL: Well, that depends. If it is a Democrat, going back to 1945, the first year has been a gain of more than 14 percent. Of course past performance is no guarantee of future results. But that compares quite favorably with a minus 2 percent for the first year for Republicans.
YASTINE: You know, 2008, it seemed day in and day out marked by huge volatility. Do you see that volatility level coming down, calming in the markets in this coming year. Or do you think we are in for yet another roller coaster ride?
STOVALL: I sure hope we don't get another roller coaster year. In the past 12 months we had more than 40 days in which the S&P declined by more than 2 percent in that single day. In the prior 50 years however, there was an average of only four times per year so we experienced 10 times the volatility that we normally do.
YASTINE: All right. We'll keep the Rolaids handy nonetheless, very interesting. Thanks for the analysis, happy New Year, Sam.
STOVALL: Thanks a lot, Jeff.
YASTINE: Our guest Sam Stovall, chief investment strategist for Standard & Poor's.
