Editor’s Note: This is one part of a series of stories looking at the top stock market stories since 2000.
The most important business story of 2008 was the collapse of the stock market and the economy as years of excess came unwound.
The Dow and the S&P500 suffered their worst years since the 1930s.
The lame-duck Bush administration and Congress tried to stop the hemorrhaging at the insistence of Ben Bernanke, chairman of the Federal Reserve Board.
Congress approved hundreds of billions in bailout money in the fall based on a quickly conceived plan to prevent major Wall Street investment banks from collapsing.
The year saw housing problems escalate into what can only be called a panic as the problem with sub-prime loans and the resetting of adjustable rate mortgages caused millions of foreclosures.
Credit problems were hammering the business sector also as lenders across the board restricted lending activities.
Meanwhile, oil hit $147 a barrel, which contributed to the global slowdown that was putting the brakes on economies around the world.
The combination of high gas prices and restricting credit forced carmakers to cut production, particularly of low-mileage, high-priced SUVs.
The summer Olympics in Beijing went off with minimal disruption and proved a showcase for the Chinese economy.
Global leaders responded to the growing financial crisis with loan guarantees, lower interest rates and other measures to keep key banks operating.
The U.S. flirted with financial disaster and the term “too big to fail” became a common refrain.
The stock markets (see table below) were hammered in a manner unseen in decades.
The Dow suffered devastating losses. To get an idea of the losses, the index experienced a negative 5,500-point difference between the high for the year and its lowest point.
The S&P 500 and the Nasdaq posted losses of a similar scale.
Despite billions pledged to rescue the economy and interest rates at historic low, the economy and the stock market raced one another for the bottom.
What Did We Learn
Before the beginning of 2008, there were few people who believed that the market and economy were as vulnerable as demonstrated during the slide.
And, it would only get worse in 2009.
There are many lessons from 2008, however several stand out:
- The bottom of the market is not where you want it to be. Unbelieving investors, both amateurs and professionals, were certain the markets would turn around in 2008.
- Although almost everyone suffered losses, those with truly diversified portfolios had the best chance to keep losses down.
- The stock market is risky in the short term. It would seem this lesson is never learned. If you will need your money in the next five years, the stock market is probably not where it should be.
- Adjust your stocks to bonds ratio as you age. More stocks when young and more bonds as you approach retirement.
Major Index Information for 2008
|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