'08 loss worst since 1930s

Stocks dropped $7 trillion in value, mostly since Sept.

January 01, 2009|By Eileen Ambrose | Eileen Ambrose,eileen.ambrose@baltsun.com

The stock market closed out 2008 yesterday, finishing a year with the worst performance since the Great Depression after weary investors faced a deep recession, the fallout of the subprime mortgage mess and some of the most volatile trading days in history.

But despite the huge sell-off and investor confidence hitting rock bottom, some market analysts predict that the worst might be over.

The Dow Jones industrial average dropped 33.84 percent, its third-largest decline ever and the biggest decrease since 1931. The Standard & Poor's 500 index, a broader measure of market performance, lost 38.49 percent, just slightly better than the severe decline of 1937.

And the Nasdaq composite index, created in 1971, posted its worst year with a 40.54 percent plunge. The Nasdaq's previous record decline occurred in 2000 when the technology-laden index lost 39.3 percent after the Internet bubble burst.

"It was a horrible year for the economy, for the stock market," said Al Goldman, chief market strategist for Wachovia Securities in St. Louis. "The destruction of personal wealth has been unprecedented since 1929."

With nearly $7 trillion in stock value wiped out last year, many investors considered it a success if they had losses that weren't as bad as the market benchmarks. Severe losses to 401(k)s, mutual funds and pensions led many investors to delay retirement or other financial plans.

On the last day of trading yesterday, all three major indexes posted gains. The Dow rose 108 points to close at 8,776.39. The S&P rose 12.61 to end at 903.25. And the Nasdaq gained 26.33 to close at 1,577.03

Last year was full of bad news, much of it exposing the high-risk gambles that some of the best-known firms on Wall Street took during the real estate bubble. A credit crunch continued throughout the year, hobbling businesses and consumers. Unemployment rose; employers cut 533,000 jobs in November alone. And the economy was officially deemed to have been in a recession since December 2007.

Maryland wasn't immune.

Baltimore's only Fortune 500 company, Constellation Energy Group, stood on the brink of bankruptcy in September until Warren Buffett's MidAmerican Energy Holdings rode to the rescue with $1 billion and a plan to buy the utility at a bargain-basement price. Constellation rejected that deal last month, choosing instead to sell half its nuclear power business to a French company. If approved by regulators, the deal will allow CEG to remain independent.

The state also is in line to lose its largest independent bank, Provident Bankshares in Baltimore, after it agreed last month to be sold to rival M&T Bank.

Maryland stocks fared worse than the overall market. The Bloomberg index of 82 Maryland stocks was down 42.09 percent for the year.

Maryland's business landscape is heavily composed of small biotech companies and financial firms, both of which took a severe drubbing this year, said James Hardesty, president of Hardesty Capital Management in Baltimore.

"Smaller capitalized stocks in general, not just in Maryland, have suffered disproportionately in this decline, which is not uncommon in big bear markets," he said

Among the year's results for Maryland financial stocks, T. Rowe Price Group was down 41.79 percent, ending at $35.44. Legg Mason Inc., suffering from weak fund performance, investor redemptions and having to shore up ailing money market funds, dropped about 70 percent, closing at $21.91. First Mariner Bancorp, hobbled by bad loans, was off about 87 percent to close at 72 cents.

Much of the turmoil hit in September: The government took over mortgage giants Fannie Mae and Freddie Mac; investment bank Lehman Brothers Holdings filed for bankruptcy protection; Bank of America picked up Merrill Lynch in a fire sale; federal officials bailed out insurance giant American International Group; regulators brokered the emergency sale of the nation's largest thrift, Washington Mutual; and the oldest money market fund "broke the buck," a rare occurrence in which investors lose principal.

Any one of these events would be enough to rattle the stock market in a normal year. But coming all at once, the events led to panic selling and a highly volatile market.

During the past three months, there were 18 days when the S&P 500 index moved up or down by 5 percent, said Howard Silverblatt, senior index analyst for Standard & Poor's.

"In the prior 53 years, we had 17," he said.

And of the 20 biggest daily point losses in the Dow's 112-year history, 13 of them occurred in 2008. That includes the two largest point drops - 777.68 on Sept. 29 and 733.08 on Oct. 15.

Among the Dow's 20 largest daily point gains of all time, 13 of them also happened last year, including the 936.42 jump on Oct. 13.

"It's embarrassing to tell people what you do for a living," said Andy Brooks, head of equity trading at T. Rowe Price Associates in Baltimore. "They think you are working at the O.K. Corral or a gambling casino."

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