News Service from House Harris

US: World stocks end calamitous 2008, eye recovery

NEW YORK, Dec 31 AFP - Global stock markets on Wednesday close out a year that saw some of the worst losses since the Great Depression, with investors eyeing a possible recovery but cautious in the face of a deep economic crisis.

Investors are assessing the damage of a calamitous year that has sapped 40 per cent or more from many stock indexes.

As trading opened on Wall Street, the Dow Jones Industrial Average of 30 blue chips was down 34 per cent, the worst annual loss since 1931, when the index plunged 52.67 per cent.

The broad-market Standard & Poor's 500 index was down a stunning 38 per cent, but has been as much as 52 per cent below its all-time peak in October 2007, marking the worst bear market since 1931, according to S&P.

The Nasdaq composite has fallen 40.9 per cent, which would make it the worst year since its creation in 1971.

Other markets around the world have fared equally poorly including the Paris CAC 40 (down 40.37 per cent), Japan's Nikkei (42.12 per cent), and Frankfurt's DAX (40.37 per cent) while London's FTSE has tumbled 31.33 per cent.

Art Hogan, analyst at Jefferies, said the year saw devastation on a historic scale.

"It's literally as bad as the market can get, in every shape or form: losses of jobs, economy, devastation in equities and residential real estate," he said.

Because of the unprecedented losses, Hogan said the feeling is that "next year has got to be better."

Investors bruised by the worst losses in decades are trying to determine whether the worst is over or if what seems like a rebound will end up being a "sucker rally".

In other markets, Hong Kong and Singapore had almost halved in value over the year, Sydney lost more than 40 per cent, Mumbai 52 per cent and Shanghai 65 per cent - the steepest annual loss in the Chinese market's 18-year history.

Sam Stovall, an equity strategist at S&P, said he saw a likely recovery from oversold conditions in 2009.

"There is a good chance that we could be seeing a bit of recovery next year, but I still think what I would call a range-bound recovery," he said.

Lewis Alexander, chief economist at Citigroup, pointed out that "given the forces at work in the global economy, however, any forecast must entail an unusually large margin for error."

Alexander said the problems are compounded by the so-called "negative feedback loop" - falling share prices mean falling wealth, dampening consumer spending and investment, leading to job cuts and lower output that reinforce the cycle.

"Since their peak over the summer, global equity markets have lost about $US25 trillion ($A36.17 trillion) in value. This represents about 40 per cent of global GDP," or gross domestic product.

Things could still get worse. But many analysts are banking on a "bottom" that will allow markets to recover even if the economy is still sputtering.

"The underpinnings of the markets continue to improve, but it is still too early to say that the worst is finally over," says Paul Nolte at Hinsdale Investments.

"Our best guess at this point is that we rally a bit early in the New Year as investors wish 2008 good riddance. However, once the likelihood of a still weak economy persists into the second quarter, we could visit the old lows again," he added.

"We are expecting that the second half of the year is not only good for the market, but also we should begin to see the effects of the huge monetary 'dump' and the economy should also begin to improve."

Fred Dickson, equity strategist at DA Davidson, said market sentiment may be recovering from its depths, helped by the vast array of actions by the Federal Reserve and US government and its counterparts around the world seeking to jolt life back into the moribund economy.

Dickson said the market "may have seen its psychological low point back on October 15" before the bulk of rescue efforts were announced, but that investors may not yet be out of the woods.

"We believe an optimistic estimate would be that the economy bottoms out next summer," Dickson said.

Yet there is no shortage of doomsayers arguing that the meltdown is not over.

Bennet Sedacca of Atlantic Advisers said he believes things will get much worse due to a dysfunctional financial system.

"The problem as I see it is that unless the (US) Treasury wants to back the entire credit market, we are simply delaying the inevitable failures that are to come," he said.

Sedacca said he sees "investable levels" coming with the S&P 500 "yet another 40 to 50 per cent lower".

Bill Gross, a respected bond fund manager, also argues for caution.

"Stocks are cheap when valued within the context of a financed-based economy once dominated by leverage, cheap financing, and even lower corporate tax rates," he said.

"That world, however, is in our past, not our future."