Stocks
Drop 3rd Year--Deepest Decline Since Depression
Chicago Tribune
By Bill Barnhart
January 1, 2003
Stock market investors, amateur and professional alike,
finally got their wish Tuesday. The year ended.
Despite a budding economic recovery, 2002 was the worst year
on Wall Street since 1974.
It was the deepest of three straight years of
stock market declines--the first three-peat loss since the Great
Depression years of 1938-1940.
The year's statistics were brutal, reflecting a major loss of
paper wealth that many Americans had counted on for retirement
income. The U.S. stock market produced $2.8
trillion in losses last year.
And the outlook remained dark, as the world stood on the brink
of a war in Iraq.
"The sentiment has not turned yet," said Giri Cherukuri,
senior trader for Oakbrook Investments in Lisle.
For the year, the benchmark Standard & Poor's
index of major company stocks lost 23 percent, and the Nasdaq
composite index fell 31 percent. It was the third consecutive
annual loss for both indexes.
The Dow Jones industrial average fell 1,680
points, or 17 percent, to end the year at 8341.63. The Dow fell 7
percent in 2001 and 6 percent in 2000.
The traditional December stock rally failed to materialize on
Wall Street. For the month, the Dow lost 6 percent.
Cherukuri said investors failed to stage the usual year-end
pattern of selling losing stocks for tax purposes and hunting for
bargains ahead of a normally upbeat January.
After three years of declines, few investors had taxable
market gains to offset with losses. As for bargain-hunting, there
was no rush to pick up beaten down stocks that showed no signs of
going anywhere soon, he said.
General Electric, a widely held company, sank for most of the
year, including a 10 percent drop in December. Software developer
Microsoft, the biggest gainer among the 30-stock Dow Jones
industrial average in 2001, fell 22 percent in 2002.
A more troubling development last year was the continued
exodus of active individual investors from the market. Average
daily trades recorded by broker Charles Schwab & Co., which
specializes in services for individual investors, have plummeted
more than 60 percent since the stock market peaked in March
2000.
"If and when we invest, it's not in stocks now. It's in the
bank getting interest," said Sheldon Rosen, 74, of Morton Grove.
Despite low interest rates on bank deposits, "it's there. That's
about all you can say," he said. "The only place I'm actually
putting money in the market is where we reinvest dividends,"
Rosen said.
One of his two investment clubs is in the process of
disbanding, he said. The other club is watching consumer-related
stocks, which held up better than many sectors last year. Utility
stocks, which used to be a safe haven for older, conservative
investors, got killed. The Dow Jones utilities average lost 27
percent in 2002.
The flight of individual investors from the stock market has
serious consequences, said Alex Jacobson, vice president for
business development at the International Securities Exchange, an
electronic market for stock options.
Market volatility--the gyrations of stock prices within each
day's trading session and over time--increases when individual
investors head for the sidelines, he said. The last two years
have been the most volatile period in stock market history.
"Individual investors round off a lot of the volatility and
provide liquidity that dampens volatility," Jacobson said.
Without active participation by millions of small, active
investors, major institutions such as pension funds and mutual
funds dominate trading with their legendary herd instincts.
It's like a bowling ball in a canoe. Volatility breeds
volatility, a process Jacobson does not see changing in the New
Year.
Meanwhile, many investors shifted to Treasury securities, oil
and gold. These investments were big winners last year.
As stocks were sinking, Treasury bonds posted double-digit
returns, sending interest rates to 40-year lows. The spot price
of gold in New York advanced 24 percent in 2002, closing the year
at $346.70 per ounce. Mutual funds that focus on gold-mining
stocks topped the fund performance charts.
Oil futures jumped 57 percent, with the price of oil for
February delivery hitting 31.20 in Tuesday's futures trading.
Stocks ended narrowly mixed in Tuesday's New Year's Eve
session. An unexpected slump in consumer sentiment, as measured
by the Conference Board, added a final blow to a year of
disappointments. Analysts had forecast a good gain in the monthly
confidence survey.
The Dow Jones industrial average closed up 8.78 points, to
8341.63.
Among the 30 Dow stocks, Honeywell International gained $1.53,
to $24, after the company boosted its pension fund by $800
million through an injection of cash and company stock.
International Business Machines rose $1.25, to $77.50, after
the company inked a seven-year contract with fellow Dow component
J.P. Morgan Chase for information technology services.
On the downside, Microsoft lost $1.05, to $51.70. Philip
Morris lost 86 cents, to $40.53, despite a favorable ruling in a
California smoking injury lawsuit.
Troubled conglomerate Tyco International led the New York
Stock Exchange most-active list, climbing $1.73, to $17.08. A
review of the company's auditing practices, released Monday, was
less troubling than some analysts had feared.
The broader S&P 500 index inched up 0.43, to 879.82; the
Nasdaq composite index fell 4.03, to 1335.51; the Russell 2000
index of small-company stocks added 0.86, to 383.09.
In Tuesday's trading, New York Stock Exchange volume reached
1.08 billion shares. The number of winning stocks beat losers by
5-3 among NYSE-listed stocks.
Nasdaq trading volume totaled 1.17 billion shares, as winners
topped losers by 10-7. Markets around world join Wall Street in
misery.
|