After enduring severe losses in 2000, U.S. stocks lost ground again in 2001 - only the fourth time in modern history the country's major market indexes have suffered back-to-back losses.
"This was another difficult year," said Joseph C. Cirelli, a financial consultant with Salomon Smith Barney in Baltimore. "This was [a] back-to-back down year, which hasn't happened since the mid-'70s. That's been very taxing on investors to have to suffer through back-to-back down years."
Each of the three key U.S. market indexes ended the year deep in the red.
The 30-stock, blue-chip Dow Jones industrial average was the best performer, dropping by 7 percent last year after a 6 percent decline in 2000.
The Standard & Poor's 500, the broader market index investing professionals tend to use, fell 13 percent in 2001 after dropping 10 percent the year before.
And the Nasdaq composite index, the closely watched barometer of the high-tech arena, declined 21 percent last year after plunging 39 percent in 2000.
All three ended the year on a sour note with losses in trading yesterday. The Dow fell 115.49 points to close at 10,021.50. The S&P 500 dropped 12.94 points to finish at 1,148.08. And the Nasdaq declined 36.86 points to end 2001 at 1,950.40.
Before 2001, the U.S. stock market had declined in back-to-back years only three times since 1900, according to Robert F. Mewshaw, president of Van Sant & Mewshaw, a money-management firm based in Lutherville. Stocks - as measured by the S&P 500 - dropped consecutively in 1929-1930, 1940-1941 and 1973-1974.
The 1929-1930 decline - at the start of the Depression - was followed in 1931 by a third straight year of losses, the only time that's happened since 1900, Mewshaw said. The S&P 500 dropped 8.42 percent in 1929, 24.9 percent in 1930 and 43.34 percent in 1931, according to Ibbotson Associates, the market research firm.
Like the late 1990s, the late 1920s was a time of widespread growing wealth, much of it driven by an unprecedented bull market in stocks that turned into a speculative mania known as a "bubble." The late-1920s bubble was burst by a worldwide recession, the Great Crash of 1929 and a Federal Reserve that obstinately tightened credit.
Investment experts noted numerous factors for the market declines of the past two years. The mania in technology stocks that helped drive the Nasdaq to an 86 percent gain in 1999 was clearly a key factor, according to Mewshaw.
"Out of that massive stock market bubble - a tremendous bubble, historically - came a sense of tremendous wealth [on the part of investors]," Mewshaw said. "People weren't saving and were able to finance their purchases, since [interest] rates were low."
Stock prices rose to historical highs relative to even the most optimistic estimates of corporate profits. When companies began missing those earnings estimates, share prices plunged. And when Internet startups - whose stock prices were based more on dreams than on any real forecasts - began to fail, technology share prices ultimately collapsed, too.
There were additional factors for the market losses of 2000 and 2001.
The contested presidential election hurt consumer confidence and retail sales in late 2000, an unsettling influence that spilled over into last year.
A recession, which ended the longest economic boom in American history, took root in March.
And the terrorist attacks Sept. 11 triggered a major market sell-off from which some stocks have yet to bounce back.
"When we look back five years from now, the factors that will stand out are the election, Sept. 11 and [possibly] the recession," said David Citron, a managing director with the local office of Carret and Co., a New York money management firm.
Long before last year ended, investors turned their attention to the new year and began counting on a market resurgence. Thanks to 11 interest-rate cuts by the U.S. central bank, and billions in fiscal stimulus by the government, market prognosticators expect the economy to rebound in either the middle or latter part of this year - with stock prices heading higher several months beforehand.
Market returns should be back in the black this year, most experts say. Since share prices have declined for three years running only once since 1900, "history is on your side for positive market returns this year," Mewshaw said.
That's not a sure thing, however. First of all, despite the declines, stocks remain fairly pricey relative to currently depressed corporate earnings. Second, profits dropped in every quarter last year, and there's no guarantee of a turnabout this year. And finally, stocks have notched significant gains from their late-September lows in anticipation of the recession's end sometime this year: The S&P had surged 19 percent, the Dow 22 percent and the Nasdaq 37 percent.
With that in mind, most experts are forecasting returns of 8 percent to 12 percent for this year - gains that are in line with historical averages, though nowhere near the higher double-digit jumps of the late 1990s.
"If the S&P does more than 10 or 11 percent for the year, I'd be surprised," said Phil Dyer, a senior manager with Wealth Management Services in Towson. Investors are entering a stretch "of much-reduced returns, in the 9 to 11, or 9 to 12 percent range. ... We'll probably be seeing much more of that, for the next several years."
Bloomberg News contributed to this article.