Editor’s Note: This is one part of a series of stories looking at the top stock market stories since 2000.
The market fallout from the dot.com melt down continued through 2002.
The Nasdaq hit a low for the year of around 1,114, down from the high mark in 2000 of 5,048.
The swing from the high to low as measured in the calendar year was -945 points or -46%.
The Dow and the S&P500 indexes also suffered huge swings during 2002. (See table at end of this article)
The difference between the high and the low for the year tells you something about the volatility.
Equally important, the all three indexes closed the year lower than they opened, which marked the third year in a row stocks closed the year lower.
While the stock markets were floundering, the nation was gripped by the war on terror, which moved closer to actual combat when Congress authorized military action against Iraq.
To say the U.S. was nervous, would be an understatement.
WorldCom, the one time darling of Wall Street, filed for bankruptcy after revealing accounting fraud.
The WorldCom fraud was one of several high-profile scandals that, combined with generally falling prices, shook investor confidence in the markets.
The Sarbanes–Oxley Act was passed by Congress and signed into law in July of 2002.
The far-reaching financial and accounting reforms were in response to the above-mentioned scandals.
The act defined the auditor’s role, set standards for financial reporting and established criminal penalties for violations.
Depending on whom you are talking to, the act was either a much-needed reform or an expensive layer of regulation on publically traded companies.
What Did We Learn?Investors learned that the bottom of a bear market could be very deep indeed. There was no clear bottom in sight as the year ended, but things would get better in 2003.
Investors also learned that sometimes high-flying stocks are held up by hot and fraudulent air blown from corporate offices.
If investors remember to ask questions and expect straight answers(very few people, including most of the financial press could explain all the intricacies of how Enron made money), fewer charlatans would get rich at the expense of the investing public.
Major Index Information for 2002
|Index||High||Low||Swing||Year Start||Year End|
|*Index information adjusted for dividends and splits|
Swing is the difference between the high and low closes for the year
Source: Yahoo Finance