The old saw about the market being ruled by fear and greed proved true once again in 2002. Fear of recession, limited corporate profits, accounting scandals and potential military action all put investors on edge and pushed the market to multiyear lows.

In mid-October, investors went on an eight-week buying binge, sending the averages up some 20% to 30% from the October lows. Still, the market is poised to book its third consecutive down year, and most broad measures are still below the levels before the terrorist attacks on Sept. 11, 2001.

Bonds once again proved to be a better place to park your money, as the 10-year Treasury note has gained about 9.7% this year.

Cloudy, With a Gold and Silver Lining

Most industry indexes posted hefty losses, but there was one notable winner, and several individual stocks posted healthy gains.

Not surprisingly, the American Stock Exchange Airline Index dropped dramatically, losing 58% for the year to date. This follows a 50% decline in 2001. The weak economy, labor woes and continued fallout from Sept. 11 ultimately led to bankruptcy filings for US Airways and UAL, the parent of United Airlines.

The sleeper of the year -- and a company that isn't part of the Amex airline index -- was Ryanair ( RYAAY). The Ireland-based low-cost, short-haul carrier has seen its shares climb 29% so far this year.

Another Rough Year
How the major indices looked by mid-December
Index High Low 12/18/2002 Close YTD % Change
Dow Jones 30 10635.25 7286.27 8447.35 -15.8
S&P 500 1172.51 776.76 891.12 -22.4
Nasdaq 2059.38 1114.11 1361.51 -30.2
Russell 2000 522.95 327.04 389.93 -20.2
Wilshire 5000 10953.64 7342.84 8431.32 -21.2
Source: TSC Research

The Philadelphia Gold and Silver Index, up 42% for the year to date, is the standout. But even within the index, there is a wide divergence in performance among the individual components. Three out of the eight companies in the index are actually down for the year.

The two primary stocks carrying the measure higher were Anglogold ( AU), up 83%, and Newmont Mining ( NEM), up 52%.

The strong showing by the metals index was driven by investors seeking a safe haven from the sinking stock market. The Gold and Silver Index has already tumbled 13% since its high of 88 in May, but optimists point to industry consolidation, a weakening dollar and the fact that gold is closing above $335 an ounce, a five-year high, as constructive for the industry.

Few Sector Winners
The Gold and Silver Index shone brightest
Industry Index High Price Low Price 12/18/2002 Close YTD % Change
Phila. Gold and Silver 88.65 59.30 77.10 +41.7
Phila. Oil Services 112 69.60 88.754 +2.7
Bloomberg Real Estate 141.18 108.75 118.60 -6.4
Phila. Bank 918.51 603.57 756.08 -12.1
Morgan Stanley Consumer 605.09 444.50 492.44 -12.8
Amex Oil and Gas 576.19 411.51 446.17 -14.6
Morgan Stanley Cyclical 597.80 369.48 450.56 -15.3
Amex Broker/Dealer 555.68 3189.24 427.70 -16.2
S&P Retail 362.20 244.15 269.66 -21.4
Amex Pharma 395.48 237.73 298.77 -21.6
Amex Biotech 605.27 275.13 351.72 -39.2
Morgan Stanley High-Tech 565.71 223.40 298.08 -41.2
Phila. Semiconductor 641.90 209.35 297.80 -42.97
Phila. Wireless Telecom 102.96 31.26 53.55 -43.5 Internet 207.12 62.70 88.34 -54.2
Phila. Airline 114.42 27.25 38.69 -58.3
Source: TSC Research

Highlights and Low Points

As scandals and myriad allegations surrounded such companies as Enron, Adelphia, WorldCom and Tyco, the investment banks that worked for these firms faced an investor backlash.

J.P. Morgan ( JPM) is down 34% for the year to date. Citigroup ( C) has lost 26%, and Merrill Lynch ( MER) has fallen 22%. All have announced layoffs and corporate restructurings and are now among the firms trying to negotiate a settlement with government regulators who are promising to clean up Wall Street research and banking.

Even discount broker Charles Schwab ( SCH), which wasn't even mentioned in the same breath as the big investment banks this year, felt the wrath of retail traders and watched its revenue drop some 42% and its shares fall 28%.

Finding winners proved to be difficult but not impossible. Only 50 companies in the S&P 500 are currently up more than 5% for the year to date. Meanwhile, 274 stocks are down 10% this year.

The S&P 500's Top Winners and Losers
Big year for Boston Scientific
12/18/2002 Close YTD % Change
Boston Scientific (BSX) $43.25 +73.3
Halliburton (HAL) 19.75 +52.4
Newmont Mining (NEM) 29.10 +52.2
Apollo Group (APOL) 43.59 +46.7
Ball Corp. (BLL) 49.69 +44.4
Nvidia (NVDA) $12.93 -80.1
TMP Worldwide (TMPW) 10.93 -74.5
Electronic Data System (EDS) 18.37 -73.2
Tyco (TYC) 16.98 -71.2
Veritas Software (VRTS) 17.29 -61.4
*Losers are based on stocks still trading above $10.
Source: TSC Research

Tech Survey

The Philadelphia Stock Exchange Semiconductor Index rocketed 45% in the eight-week period following the October low, despite no apparent fundamental change. Even though it's given back about half those gains in the past two weeks, valuations remain healthy. For example, Intel ( INTC) is trading at 47 times earnings, and KLA-Tencor ( KLAC) is sporting a price-to-earnings ratio of 42.

Even the beaten-down wireless sector enjoyed a year-end rally on hope of renewed demand. Shares of AT&T Wireless ( AWE), at $6.85, are still down 54% for the year, but have doubled from their recent $3.20 low.

Three leaders of the Internet revolution turned in nice performances. ( AMZN) shares have gained 100% to $22 for the year to date. Yahoo! ( YHOO), while down 3.5% for the year, has also doubled from its low of $9. eBay ( EBAY) has eked out a 4% gain for the year to date. Another of the Internet's household names, AOL Time Warner ( AOL), wasn't as fortunate and has lost 60% for the year to date.

Price Pressure Could Reduce ISPs to Tiers
Big Software Aims Small in 2003
Most Sectors Slide, but Gold and Silver Shine
Five Stocks Shine in Dreary Year
Networking: Next Year: Cisco, Juniper and Red Ink
Cisco Shift Gums Up the Works for Rivals
Homeland Security: Firms Scramble to Cash In
Wireless: Pinning Hopes on Shutterbugs
Consumer Debt: Looks Set to Keep Soaring

Old Economy Warriors

Retail sales have become sporadic, with market leaders, such as Wal-Mart ( WMT) and Target ( TGT), offering lackluster sales figures going into the latter part of the holiday season. For the year, these two stocks are down 13% and 28%, respectively.

Homebuilders have held some nice gains after a series of strong months. Lennar ( LEN) is up 13% on the year and holding on to three-year gains of 224%. A backlog of orders and continuing faith in home ownership may keep the wind at the back of these stocks over the next year.

As we head into these final days of 2002, one bright spot is that people are actually making a solid case for the worst being over (in some quarters at least). Of course, last Jan. 1 many people thought a third straight down year for the major averages was an improbable scenario. Whether the market will have a fourth is speculation at this point, but winners will emerge. You just might have to look a little harder.
Steven Smith writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Steve Smith.