Ghost of 2008 haunts investors as markets start year grimly
NEW YORK -- Investors are reliving the stock market trauma of 2008. Just when people thought things couldn't get worse, stocks this year are off to a worst-ever start.
The value of the stock market has declined $700 billion already in 2009, according to Dow Jones Indexes.
"It's like déjà vu, only worse," says Bespoke Investment Group's Paul Hickey.
The sell-off is ratcheting up investor angst. It sends a signal that Wall Street fears the sick economy will take longer to heal than previously thought. It also calls into question the belief that stock prices already reflect the impact of the nasty recession.
Nine trading days into the new year, the S&P 500 is down 6.7% to 842.62. That beats the prior record for the same time period set in 1982, Bespoke says. It's also more than double the loss suffered in the first nine sessions last year.
Echoes of 2008 are everywhere. Investors are losing faith in banks. Analysts are slashing corporate profit estimates. Consumers, hobbled by high debt and job anxiety, are hunkering down, compounding the slowdown.
And critics in Congress and on Wall Street are again taking aim at the way the federal government is managing its massive rescue fund, known as TARP.
"I've seen this play before," says Henry Herrmann, chief executive officer at money management firm Waddell & Reed. "This is a template for what investors can expect for a while. Hope and despair, depending on economic data and government policy action."
The investment landscape is as uncertain today as it was at the most trying times in 2008, says Jon Najarian, co-founder of OptionMonster.com.
What's worrying Najarian:
•More bank troubles. Despite government cash infusions, investors are betting banks will need to raise billions more to offset fresh losses caused by bad loans. "The banking industry still has a solvency issue," he says.
•Posturing over stimulus package. Investors initially believed that President-elect Barack Obama's massive stimulus plan was going to enjoy a swift passage through the House and Senate. Now they're not so sure, given the posturing on Capitol Hill. "How soon is the Obama package going to hit?" he says.
