The average U.S. stock fund plummeted 37.9% in 2008, slightly worse than the Dow Jones Industrial Average's 33.8% loss. It was the Dow's worst year since 1931, when it declined by more than 50%. Meanwhile, the Standard & Poor's 500 Index fell 37%, its worst performance since 1937.
The best-performing specialty category was healthcare funds, which fell 23.1% in 2008, and the worst-performing was communications funds, down 49.9%. Even conservative allocation funds declined by an average of 18.1%, as did target-date funds, which gave up 22.3%. Regardless of the fund category, the declines were all about the same; large-cap mutual funds declined 37.7%, mid-caps fell 38.5% and small-caps lost 36.1%.
And redemptions didn't make the picture any prettier. Through November, investors pulled $215 billion out of equity funds, whereas in the first 11 months of 2007, they invested a net $91 billion.
"It will definitely be a great pleasure to bid farewell to 2008," Ed Yardeni, president of Yardeni Research, told MarketWatch. "It was a horrible year for just about every investor and every asset class. But we'll only be able to say good riddance to 2008 if 2009 isn't worse or the same."
Many believe the economic woes will continue for some time, including financial adviser Gary Shilling. "Consensus has the recession ending in the middle of . I just don't see that," he said. "We are in trouble. The recession is going to run at least through next year. We are at the onset of deflation, which will reign during the rest of this recession."
The coming year "is still going to be challenging, concurred Alan Lancz, president of registered investment advisory firm Alan B. Lancz Associates. "After the tech bubble, it took 2-1/2 years for the market to get back into a bullish phase, and this is much worse. We're not going to be off to the races. Investors have to be nimble and still cautious."
The only possible light at the end of the tunnel is that stocks tend to move forward in price ahead of the economy. For those optimistic about the length of the recession, that means stocks could begin to improve by the summer at the earliest or year-end at the latest. Also, some view the market's volatility opportunistically, in terms of prices available, particularly for economically sensitive areas such as commodities, finance and industrials.
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