NASDAQ

The U.S. equity markets in 2002 fell for the third consecutive year, something the markets hadn't done in 60 years. On paper, the losses totaled $2.8 trillion, as measured by the Wilshire 5000 index, which includes nearly every publicly traded company based in the U.S. The total value of U.S. stocks peaked near $17 trillion in March 2000 and at yearend 2002 totaled about $10 trillion. Technology stocks were the hardest hit again during 2002 which put greater percentage pressure on the Nasdaq composite index than on the bellwether Dow-Jones 30 industrial index. Using the latter as a guide, the market showed moderate strength during the first quarter, with the index reaching about 10,500, its highest level since mid-2001. Then it was all-downhill for six months with the index reaching about 7200 in October. The late 2002 recovery was anemic at best. A number of factors weighed on equities during the year some of which were not foreseen, if not more fittingly disregarded, earlier in the year. Perhaps foremost were signs that the economy's was not as robust as had been expected in view of the Fed's aggressive monetary easing in 2001 and federal tax cuts. Although officially not in a recession, unemployment rose through the year, reaching 6% in the fourth quarter. Corporate profits were decidedly mixed, but on balance viewed as disappointing. Corporate scandals took much of the wind away from the bulls, as accounting frauds were uncovered forcing the restatement of apparent profits in past quarters to realized losses.

As 2002 progressed, investors were "spooked" by constant reminders of possible war between the U.S. and Iraq, the uncertainty of which buoyed oil prices to a two-year high. The negative psychology that persisted through much of 2002 cut deeply into the confidence of equities traders and investors, a market intangible that is needed to both launch and sustain a viable bull market if one is to take hold in 2003. The bulls point out that four-year streak of equity losses would be almost unheard of, happening only once in the 20th century--1929-1932, and only once in the 19th century--1836-1839. On balance, some recovery in equities is likely in 2003 if the easier monetary and fiscal policies of the previous two years finally fall into the place, but its also likely that the overall political/economic uncertainties weighing on equities were not apt to give way quickly. It could also be argued from a contrarian stance that the widespread nervousness will prove actually beneficial. Then again, these views were also expressed in early 2002.

The bellwether price weighted Dow-Jones 30 industrial index, which includes some Nasdaq stocks lost nearly 18% following losses of 7% and 6% in 2001-2000, respectively. The market capitalization weighted S & P 500 index fell 23% vs. a loss of 13% in 2001 while the S & P 100 dropped almost 24%. The Russell 2000 lost 21.58% following a 2001 a gain of 1.03%. and the value line index lost about 17% vs. a 6% loss in 2001. Even the Dow-Jones Utility index lost 27% vs. a 29% drop in 2001.

Trading volume continued at a record pace: on the New York Stock Exchange about 363 billion shares vs. 308 billion in 2001 and. 263 billion in 2000, but the Nasdaq's volume slipped to 434 billion from 463 billion in 2001. As has been the case since the mid-1990's market volatility was the rule rather than the exception, partially reflecting burgeoning computer driven day trading that tends to feed upon itself. Program trading accounted for 32.5% of the NYSE's average daily trading volume vs. 27.6% in 2001 and 21.4% in 2000. The markets' weakness in 2002 also reflected an apparent return to properly (and honestly) evaluating corporate earnings as the traditional price determinant, which was not the case seen in much of the 1990's and into the new decade when time tested traditional analytical parameters were relegated to the backburner. Moreover, even the technical market approach was questioned as so-called support/resistance areas often gave way quickly.

Futures Markets

The Chicago Mercantile Exchange (CME) IOM division trades index futures and options on the S&P 500, the S&P MidCap 400, the NASDAQ 100 and the Russell 2000. The Chicago Board of Trade (CBOT) lists futures and options on the Dow-Jones 30 industrial stock average. New York Stock Exchange Composite index futures and options are traded on the NYFE Division of the New York Board of Trade (NYBOT). Trading in single stock futures commenced in 2002 in both Chicago and New York.

Excerpted from the CRB Commodity Yearbook. For more information on CRB products click here