As measured by the U.S. stock market, 2008 was the worst showing since 1931. The Dow Jones Industrial Average (DJIA) decreased 33.8% while the tech laden Nasdaq Composite Index was off 40.5% for year year. Just about every asset class (U.S. stocks, foreign stocks, bonds, real estate and commodities) had negative returns for the year. The only bright spots were money market funds and short-term bond funds which finished the year up 2%-5%.
The greatest calamity turned pleasantry in 2008 pertained to oil & gas prices. Who would have ever thought oil would decrease for the year after escalating to $147 per barrel? It managed to increase and decrease over 100% in 2008. How bizarre. I wonder how many pundits are going to say they called this and got it right (I'm sure someone will step up and take credit at some point).
There are a number of theories as to why this happened. I'm not sure anybody will really ever know for sure. The bottom line: Current prices are somewhat of a stimulus package in and of itself as families are now saving a fair amount of money on energy costs as year-over-year prices for oil & gasoline have decreased.
What can we expect in 2009? Nobody knows. In my predictions for 2009, I reference how some things are facts and others opinions (aka - guesses). Nobody knows for certain what will happen in the future and if they do, run for the hills! Or, take a contrarian approach, and do the opposite.
Equity investments have proven to be a winning formula for over 100 years. Although frustrating and painful at times, set backs are a normal part of the investment process. The capital markets will ebb & flow like ocean tides. While we'd all prefer the setbacks to be mild in nature, some storms are worse than others and 2008 would certainly fall into this category. Hopefully, the storm is now nearing completion and a rainbow is forming on the horizon. Brighter days will prevail.