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Remember what happened a year ago?

Thursday, January 01, 2009

In looking through material from exactly one year ago in preparation for tomorrow's all-important (and exceedingly difficult) predictions for the new year, the following chart popped up from the January 2nd post titled "That was interesting".
It seems that the first day of trading last year set the tone for the next six months.

While broad equity markets set out on their year-long decline, oil began at just under $100 a barrel and got a good head start on its move to almost $150 from which it began tumbling in July. Similarly, gold was priced about $50 below where it stands today but was getting ready to surge to over $1,000 in March when the Bear Stearns leg of the credit crisis began.

A short excerpt:

Well, that really started the year off with a bang. Of course it probably wasn't the kind of a bang that most people were expecting but it was a bang nonetheless.

Oil hit $100 for the first time (briefly, so they say) and finished at over $99. This Bloomberg report said, "Three-figure prices may bring energy costs near the tipping point that will cause global economic growth to falter."

Didn't they say that about $50 and $60 and $70 and $80 and $90?

Gold made a new all-time high at over $860 closing in New York at $856.70. This Bloomberg report noted, "Investors are pouring money into the precious metal as part of a commodity surge with the dollar under pressure from the prospect of more cuts in U.S. borrowing costs."

When the damage was tallied, it turned out to be one of the worst opening days in history. A USA Today report the next day was the subject of this post that contained an interesting graphic and some bad math along with some ominous parallels courtesy of Floyd Norris.
USAToday reports on yesterday's dismal performance of U.S. equity markets noting that the decline was the steepest opening day loss since 1983.
Hopes for a strong start to the new year barely lasted a half-hour Wednesday as stocks ran smack into the exact same fears that caused so much trouble in 2007.

All three major stock market indexes started sliding following a morning report showing manufacturing activity slowed in December, and the selling accelerated after oil prices briefly spiked above $100 a barrel. The news fanned concerns that the economy could be teetering on the edge of recession — and triggered Wall Street's worst January-opening performance in 15 years.
Maybe my math is wrong, but that looks more like it should be 25 years, not 15 years.

Floyd Norris at the New York Times reported on the relative damage to the S&P500 via numbers provided by Howard Silverblatt. In this tally, yesterday's 1.4 percent plunge ranks as the 6th worst start to the new year.
Every one of the previous five came when the economy was in a recession, or not far from one.

Here’s the list:
  1. 1932, down 3.7% on the first day. Thus began the last year of the worst part of the Great Depression. The National Bureau of Economic Research thinks the recession that began in August 1929 lasted until March 1933.
  2. 2001, down 2.8%. A recession began in March.
  3. 1980, down 2.0%. A recession began that month.
  4. 1949, down 1.6%. A recession had begun in November 1948.
  5. 1983, down 1.6%. A recession had ended in November 1982.
Now even if you make the leap that this somehow forecasts the economy, it doesn’t do much for the stock market investor. The stock market had great years in 1980 and 1983, and a good year in 1949. On the other hand, getting out at the beginning of 1932 or 2001 turned out to be a wise decision.
Today should be better.
Though it wasn't known until almost a year later, a recession was already officially underway at the time and, as it turns out, the next day was indeed better. After the 1.4 percent drop on Wednesday, the S&P500 finished Thursday exactly where it began at 1447.16.

On Friday, however, the index plunged a whopping 2.4 percent (no, it doesn't seem like a lot now, but it did back then) before going on to lose five percent for the month of January in the beginning of what would turn out to be the worst year for stocks since the Great Depression.


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