Market Highlights (and Lows) in 2002

A look at some of the highlights and trends that made up the year that was on Wall Street:

Eerie coincidence ...

If the bear market ended Oct. 9 -- when major indexes hit five-year lows -- numerologists ought to have a field day with one particular statistic: The Standard & Poor’s 500 index closed at 776.76 that day. That is just a hair’s-breadth below the 776.92 closing level of the Dow Jones industrial average Aug. 12, 1982, which marked the end of six years of misery for blue-chip shares. The great bull market of the 1980s and ‘90s was born Aug. 13, 1982.

Don’t confuse him with his brokerage ...

Merrill Lynch & Co., whose corporate symbol has long been a robust bull, employs as its chief investment strategist one of the least optimistic analysts on Wall Street.

Richard Bernstein, who took over as Merrill’s strategist late in 2001, expects the S&P; 500 index to end this year at around 860. That would be a drop of 2.2% from where it closed 2002.

Bernstein advises Merrill clients to keep stocks to no more than 45% of their portfolios, with the rest in bonds and cash. By contrast, the average recommended stock portfolio weighting of 15 brokerage strategists surveyed by Bloomberg News is 67%.

Why so glum? “The equity market still appears very speculative to us,” Bernstein told clients in a report last month. Most investors, he said, don’t have enough of an appreciation for what could go wrong with corporate earnings and geopolitical events in 2003.

Don’t confuse the stocks with the currency ...

The euro currency came on strong in 2002 and by year’s end had reached $1.05 in value, its highest level in three years.

Analysts said some global investors have been dumping dollar-denominated securities on fears that a U.S.-Iraq war could hurt the U.S. economy. In theory, some of that money is flowing into euro-denominated securities.

But the performance of European stock markets last year suggests that money coming back to the Continent isn’t coming back for equities. The main German market index plunged 44% in euro terms in 2002, about double the loss of the U.S. S&P; 500. The French market sank 34% and the Italian market dropped 26%.

The stronger euro is trouble for Americans visiting Europe because their spending power has been slashed. But it’s good news for Americans who own European stocks: Losses in those markets are cushioned as euros automatically translate into more dollars.

In dollar terms, the German market’s loss in 2002 was 34%, the French market fell 22%, and the Italian market was off 13%.

Internet mania returns, sort of ...

Scores of Internet companies have been relegated to history’s dustbin since 2000, but that hasn’t damped some investors’ enthusiasm for the sector. Some of last year’s hottest stocks were Net-related.

Among them were retailer Amazon.com, which soared nearly 75% in 2002, from $10.82 a year ago to $18.89.

By contrast, the Nasdaq composite index sank 31.5% for the year.

Other gainers in 2002 included online travel firm Expedia.com, up 65%, and business information site MarketWatch.com, up 49%.

In part, the gains in those shares may reflect the massive shakeout in the sector: As many competitors fall away, survivors gain market share. The Internet, after all, isn’t going away.

Investors have been especially keen since midyear on some China-related Net companies traded on Nasdaq, including Netease.com, which soared from under $1 a year ago to end 2002 at $11.45; and Sina.com, which rocketed 311% for the year to end at $6.50.

The price of scandal: one man’s estimate ...

Paul Atkins, named to the Securities and Exchange Commission last year by President Bush, in November gave a speech in which he estimated that the long string of corporate accounting scandals that began with Enron Corp. in December 2001 cost the average U.S. household $60,000.

Atkins didn’t say how that number was derived, and an SEC spokesman later told Associated Press that he didn’t know the origin of the figure.

How to fight gloom: Issue a “festive” report ...

Economists at Goldman, Sachs & Co. in December issued a report titled “A Festive Issue: How Things Could Go Right!”

Their point, they said, was that they had, since 2000, “spent much of our time warning that the imbalances that had built up during the bubble years would have far-reaching consequences, and that [economic] growth was likely to disappoint expectations.”

Given three years of gloom, they said, it was time to consider “how might things be better than we expect” in 2003. They identified three potential positive surprises for the new year.

“First, we may be too cautious about the scope of a recovery in global investment spending” by businesses, the Goldman economists said.

Second, “a sharp fall in oil prices could provide significant stimulus to the global economy.” Crude oil futures in New York ended the year at $31.20 a barrel, near the highest level in two years, amid worries about a Mideast conflict and dwindling supplies from strike-ridden Venezuela.

Third, central banks and major governments may decide to act more aggressively to “reflate” the global economy -- meaning, they could cut interest rates even more, and cut taxes to boost spending, the Goldman economists said.