NEWS YOU CAN USE: Strike Three for the Market

Physician's Money Digest, January31 2003, Volume 10, Issue 2

In the immortal words of Yogi Berra, it was déjà vu all over again for the stock market in 2002. There were more threats of terrorism, more accounting scandals, more economic doldrums, and more rising unemployment figures. Add in fears of war with Iraq and/or North Korea and a strike in Venezuela, which pulled the plug on 1 of our major oil suppliers, and you get the unpleasant recipe for Wall Street's third straight down year—an unenviable streak that hasn't been matched since before World War II and is topped only by a 4-year stretch from 1929 to 1932 at the start of the Great Depression.

Even Santa Claus was a no-show on the Street this year, with the Dow chalking up a 6% loss in December, its worst since 1931, on the way to its worst annual loss since 1977. The S&P 500 also had its poorest December since 1931, with a drop of 5.5%, while the Nasdaq finished its worst December ever, with a 9.7% drop. By the end of the year, the Dow was down 16.8%. The S&P 500 fared no better, plunging 23.4% in 2002, the third straight down year for that index. The Nasdaq, with a 31.5% drop, posted its first 3-year losing streak since the exchange was established in 1971.

In 2002, the market hit positive territory briefly in January and again in March, then settled into a steady downhill trend, broken only by a brief summer rally and a more sustained rise in October and November. This early Santa Claus rally helped put the fourth quarter into the black despite December's dismal numbers, with the Dow up 10.6% and the S&P 500 up 8.4%.

Investors who looked for help from overseas markets last year were also disappointed, with the average global stock fund, which includes US stocks, posting a 19.6% loss. Regional breakdowns saw European funds down 17.5%, Latin American funds off 20.5%, and Pacific Region funds in the red by 11.2%.

Once again, bonds were the place to be last year, with the 10-year US Treasury note racking up a 14.6% gain for 2002 and the average longterm US bond fund cruising to a 10.7% gain. Short-term and intermediate- term US bond funds did not do quite as well, but still added gains of 6.4% and 10%, respectively. Chastened stock-fund investors will note that, over the past 3 years, the average long-term US bond fund has rung up a 9.7% annual gain, compared with a 14.5% average annual loss for the S&P 500. Outside of bond funds, winners were scarce, with real estate and precious metal funds among the few fund categories to end up in positive territory for the year.

More than 95% of stock funds were down in 2002. The 10-year average annual return for a US stock fund is now 7.6%. What's in store for stocks now? A strong January may augur a positive year for the stock market, although weary physician- investors may do well to root for the NFC entry in this year's Super Bowl. When NFC teams win (or a team from the old NFL before it merged with the AFL), stocks usually go up for that year. Don't laugh— this funky football forecast has racked up an amazing 88.5% accuracy rate over the 35-year history of the Super Bowl, despite batting only 0.5 over the past 4 years. Take a look at the stats below.