Wall Street closed the book on 2001 Monday, ending a rather grim year for stock trading.
The family home seems to have been a better investment for most Americans in 2001, than the stock market. With mortgage rates way down, the average sale price for homes in the United States was up over five percent from a year ago.
Contrast this with the return on stocks. The Dow Jones Industrial Average closed the year about seven percent lower, its second annual decline in a row. The Standard and Poor's 500 index, a broader measure of the market, is off about 13 percent, posting its worst yearly loss in almost 30 years. The tech-weighted Nasdaq is down over 20 percent.
The terrorist attacks of September 11 marked a nadir in the U.S. stock market. Prices plunged to three-year lows. However, the market was already under siege from economic pressures. While a recession was not officially declared until November, a sharp downturn stalked U.S. investors for most of 2001.
Crystal-ball gazing has not been a strong point for Wall Street analysts for the last two years. But they keep trying. No one likes to ring in a new year without indulging in a few predictions. Although a bit more cautious this time around, prognosticators generally are upbeat.
Market-watcher Peter Kenny says the Dow Jones has not declined for two straight years since 1977-78, so a third down year is hard to imagine. "It's not likely, statistically speaking, that we're going to have a third successive year on the down side. That statistical aberration, coupled with strength in durable goods, continued strengthening of consumer confidence, strong housing numbers, all of this portends a stabilized market for 2002," says Mr. Kenny. "Going forward, we're seeing the market turning, already having made the turn, and stabilizing."
Investment strategist Ned Riley is also hopeful, partly on his belief that the U.S. central bank will continue its strategy of easing credit. "I think we're going to have an upward market. It's not going to be smooth, though. Long-term interest rates typically do rise at the beginnings of economic recoveries and I think that's what we're seeing right now. That may be an obstacle for the market during the first half of the year," says Mr. Riley. "But I still think there's tremendous operating leverage in profits. The Fed's going to continue to ease [lower short-term interest rates] and keep liquidity plentiful until they see signs of recovery."
Economists differ on a time-frame for recovery. Some put it into the first half of 2002. Others think the latter half is more likely. Either way, Wall Street is looking to better times ahead, after its dismal performance over the past 12 months.