Stocks end 2002 with 3-year loss


Published: Wednesday, January 1, 2003 at 6:01 a.m.
Last Modified: Tuesday, December 31, 2002 at 9:45 p.m.

Facts

A look at the losses

  • Both the Dow and S&P suffered their first three-year declines since 1939-1941.
  • The Nasdaq posted its first three-year loss since the exchange's inception in 1971.

  • NEW YORK - Wall Street ended its third straight losing year on a mixed and dreary note Tuesday as investors' hopes of a resurgent economy in 2002 were stifled by fears of terrorism, war and a wave of accounting scandals.
    In the end, 2002 closed with the Dow Jones industrials down 16.8 percent for the year and 27.5 percent since Dec. 31, 1999. Analysts said a slide in the last days of December showed investors demoralized by three years of losses aren't willing to make major bets on a turnaround in 2003.
    "It's been a terrible year, particularly on top of 2000 and 2001 being down years. It's really unprecedented territory," said Mike Kayes, chief investment officer at Eastover Capital in Charlotte, N.C.
    The Dow rose 8.78, or 0.1 percent, to close Tuesday at 8,341.63.
    The broader market finished mixed. The Nasdaq composite index fell 4.03, or 0.3 percent, to 1,333.51. The Standard & Poor's 500 index rose 0.43, or 0.1 percent, to 879.82.
    Both the Dow and S&P suffered their first three-year declines since 1939-1941. The Nasdaq posted its first three-year loss since the exchange's inception in 1971. A disappointing report on consumer confidence Tuesday further dampened the buying enthusiasm typically seen at year's end.
    The Conference Board said its consumer confidence index dropped to 80.3 percent from a revised 84.9 in November, offering a disappointing outlook for consumer spending. Analysts expected a December reading of 88.0.
    Wall Street historically has seen strong gains during the last two weeks of December on hopes of better prospects for the new year. But investors have shied away from major stock commitments on worries that rising oil prices and tensions with Iraq and North Korea will stall the economic recovery.
    Indeed, the Nasdaq finished its worst December ever, with a 9.7 percent drop, while the Dow and S&P 500 had their poorest December since 1931, with declines of 6.2 percent and 6 percent, respectively.
    For 2002, the Nasdaq dropped about 31.5 percent and the S&P declined 23.4 percent.
    "Investors are closing this year in much of the same mood they endured the last 12 months, one of discouragement and concern about factors that are way beyond our control," said Charles G. Crane, strategist for Victory SBSF Capital Management.
    Eastover's Kayes said, "Investors have been hurt by the combination of accounting scandals, the lingering effects of the war on terrorism and the lack of market leadership. It just takes a long time for things to unravel after the really historic bull market run of the 1990s."
    It wasn't supposed to be this way. Investors began 2002 with optimism, hoping the economy could rebuild after the Sept. 11 terror attacks. But then accounting scandals took center stage, at companies from Enron to WorldCom to ImClone, leaving investors distrustful.
    Worries about a war with Iraq and, more recently, tensions with North Korea also weighed heavily on the market, negating much of a two-month rally seen in October and November. The concerns also dashed hopes of a traditional year-end rally.
    Still, analysts cautioned against drawing too many conclusions from recent declines, explaining that volume has been weak due to the holidays. The Nasdaq dropped in the last five sessions, while the Dow and S&P 500 has fallen in their last four of six sessions.
    They also urged investors to keep the losses of 2002 in perspective.
    "Real money has been lost in the stocks, and that is not a good thing," Crane said. "On the other hand, if we pull the camera back and look at the balance sheets in total, value has been created in real estate, and bond portfolios have experienced gains."
    Gainers on Tuesday included Tyco, which rose $1.73 to $17.08 after the diversified company said its former managers pushed the limits of accounting regulations to inflate profits, but didn't break the rules.
    Honeywell climbed $1.53 to $24, while IBM gained $1.25 to $77.50.
    Advancing issues outnumbered decliners nearly 9 to 5 on the New York Stock Exchange. Volume was light at 1.06 billion shares, slightly higher than the 1.03 billion traded Monday.
    The Russell 2000 index, a barometer of smaller company stocks, rose 0.86, or 0.2 percent, to 383.09.
    In Europe, France's CAC-40 rose 1.3 percent and Britain's FTSE 100 gained 1 percent. The stock exchanges in Japan and Germany were closed Tuesday.

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