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Has Pessimism Gone Too Far

CTV broadcast a set of news items yesterday to highlight what has now become a daily parade of negative financial news. CTV reported that 850 people in Newmarket and Aurora will lose their jobs because of Magna closing plants. CTV then reported that there was a 90 percent plus jump in Employment Insurance claims in Oshawa. And the videographer painted Oshawa as a ghost town: empty stores, empty streets, empty wallets.

The Wall Street Journal asked the question whether pessimism has gone too far. And they presented an interesting data point. On Thursday, November 20, the S&P was down 48.8% for the year to date.

At that point, 2008 goes down as the worst year in the history of the S&P. Since 1926.

The only time that the markets came close to losing that much money was in 1931. The Great Depression. The S&P lost roughly 43 percent.

All this got me thinking: What was the worst year of all time? Regular daily securities trading began in New York on July 1, 1791, inside a coffee house on the corner of Wall and Water streets, where overcaffeinated brokers could pounce on the latest news moments after ships nudged into the docks on the East River. But trading was spotty and stocks were few for the first couple of decades. Only around 1815 were there enough stocks and sufficient trades for us to get a sense today of how the average stock performed back then.

Yale finance professor Will Goetzmann and his colleagues have built an index for NYSE stocks all the way back to 1815, so it”™s not hard to answer the question of where 2008 ranked, as of Nov. 20, among the worst years of all time.

Here are the 20 worst years in history, based on Yale”™s NYSE index until 1925, and for the S&P from 1926 onward:

1941 -11.6%
2001 -11.9%
1893 -12.3%
1857 -13.2%
1837 -13.4%
1828 -13.6%
1831 -14.0%
1973 -14.7%
1920 -15.0%
1841 -16.1%
1917 -16.4%
1884 -18.5%
1839 -19.0%
1907 -21.8%
2002 -22.1%
1930 -24.9%
1974 -26.5%
1937 -35.0%
1931 -43.3%
2008* -48.8%
*Through Nov. 20.

When this series of stock-market data began, James Madison was president. From that day until this, the market has never seen carnage on the scale of this year. 

Via.