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Wall Street's Final '08 Toll: $6.9 Trillion Wiped Out

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By Renae Merle
Washington Post Staff Writer
Thursday, January 1, 2009

After months of tortuous trading, Wall Street rang out its worst year since the Great Depression yesterday, leaving shareholders $6.9 trillion the poorer.

It hardly mattered that the market finished the last day of the year with a modest gain.

The losses in 2008 were so broad and deep that every sector in the Standard & Poor's 500-stock index took a double-digit hit, and the financial sector lost more than half of its value. The Dow Jones industrial average, an index of 30 blue-chip stocks, and the S&P, a broader index watched by market professionals, were down 34 percent and 38 percent, respectively, their deepest losses since the 1930s. The tech-heavy Nasdaq composite index was down 41 percent, its worst year since the exchange was created in 1971.

Overseas, the year was just as dismal. In Germany, stocks were down 40 percent, in Japan, 42 percent, in Brazil, 41 percent. Taken together, all of the world's stocks lost 48 percent last year.

Traders endured unprecedented turmoil last year as Lehman Brothers, an icon of the financial industry, teetered then collapsed, while other firms were saved by government intervention or disappeared into the arms of competitors. By the end of 2008, the Dow had set new records for its three largest single-day point gains and two steepest point losses after swinging hundreds of points an hour during some sessions.

Investors now have turned from the wreckage of the past year to focus on the prospects for President-elect Barack Obama's proposed stimulus package to revive the economy, analysts said. The Dow closed yesterday up 1.3 percent, or 108 points, at 8776.39, while the S&P climbed 1.4 percent, or 12.61 points, to close at 903.25. The Nasdaq was up 1.7 percent, or 26.33 points, at 1577.03.

The year ended with relatively positive economic news, though analysts said it will have limited impact. The Labor Department said jobless claims fell by 94,000 last week to a seasonally adjusted 492,000, a bigger drop than expected, but unemployment remains historically high. And rates for a 30-year, fixed-rate mortgage fell to 5.1 percent this week from 5.14 percent the week before -- the lowest since Freddie Mac began tracking that data in 1971. But the housing market remains weak and home values have plummeted.

With the economy expected to sour further during the first half of the year and poor corporate earnings likely to pile up as businesses account for the losses from the financial crisis and housing downturn, a stock market recovery will be bumpy, analysts said.

It has traditionally taken about five years for stocks to recover from a "mega-meltdown," said Sam Stovall, chief investment strategist for Standard & Poor's Equity Research. If the S&P does not revisit the low levels it reached in November, it could gain 15 percent in 2009, making a dent in 2008's losses, he said.

But "if we find the recession is deeper and longer than we currently expect, if there are more financial land mines that are unanticipated, there is no guarantee" stocks will not collapse again, Stovall said.

The market's volatility spilled into traditionally stable parts of the economy, increasing demand for government bonds, for example. The yield for one-month Treasury bills started at about 2.6 percent in 2008, but unprecedented demand pushed it into negative territory before it finished at 0.01 percent yesterday. The smaller yields mean that investors were willing to earn little on the bonds, and when the yields plunged into the red, do without any return and pay the Treasury Department to keep their money safe from market turbulence.

Investors' skittishness could also be seen in the market for crude oil. After surging to $147 a barrel in the summer, prices began a precipitous slide as economic concerns spread and demand dropped. The price climbed 14 percent to $44.60 a barrel on the New York Mercantile Exchange yesterday, but has fallen about 70 percent from its peak and finished down about 50 percent for the year.

The fall in crude was faster and deeper than expected, analysts said, and prices could still plummet to $25 a barrel if economic conditions get worse than expected.

"This is a year that people will go back and look back and study for the next 100 years," said Phil Flynn, oil analyst at Alaron Trading in Chicago.


© 2009 The Washington Post Company

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