Painful 2002 for Stock Market
The year 2002 saw it’s share of pains with stock research scandals, hocus-pocus accounting scams, massive layoffs, and a looming war in the Middle East... to mention a few. These pains are followed by a third straight year of overall market declines, a trend not seen in more than 60 years. The shareholder retaliation, tough legislation, and crackdowns by regulators have given rise to a generation of skeptics of the nation's financial system. In summary, the Dow fell 16.7 percent, while the Nasdaq plunged 31 percent -- the biggest loss among the major averages.
In Washington, President Bush signed the Sarbanes-Oxley Act of 2002 into law. The legislation will result in the biggest changes ever in the financial industry as well as in general regulation of corporate conduct. One of the law's primary areas of focus is on corporate governance, including relationships between external auditors and public companies, as well as the independence of board members.
"Now, with the tough new law we will act against those that have shaken confidence in our markets using the full authority of government to expose corruption, punish wrongdoers, and defend the rights and interests of American workers and investors," President Bush said when he signed the bill into law in July.
Many Wall Street firms are still in talks to settle a broad range of issues with regulators on the state and federal level. The anticipated outcome is an agreement to completely sever stock research from investment banking, and the payment of about $1 billion in fines. Before the Wall Street shakeout is finished, as many as half the analysts from the major firms will be working in different places.
Outlook for 2003 is Better
Market experts predict a better year ahead for stocks as the U.S. economy picks up steam and the situation in Iraq gets resolved one way or another. Strategists expect the major stock averages to rise at a moderate rate over the next year, though analysts understand the term “moderation” differently.
According to one industry expert, the U.S. economy is projected to grow at about three percent. Helping to push the economy and stocks along will be the return of corporate earnings, which could grow at around 8 1/2 percent in 2003, representing the first growth in two years. Another market expert, who also sees the moderation, predicted a gain of around 8 to 10 percent for the major averages.
President Bush is expected to come under great pressure to take measures to boost the stock market after three consecutive years of declines -- the first time this has happened since the 1939-41 period. If stocks tumble for a fourth straight year, it would mark the worst bear market since the Great Depression (when stocks fell from 1929-32). Analysts think Bush will come up with further tax cuts and possibly eliminate double taxation of dividends to reinvigorate the economy and stocks.