"Bail-out" was the word of the year, according to the compilers of the Merriam-Webster dictionary. It was certainly the word on the minds of investors for most of 2008, raising hopes that were usually quickly dashed.
Back at the start of the year, expectations were high that the bull market would resume promptly. Wall Street was unfazed, says Kopin Tan in Barron's; a poll of 12 US strategists revealed a consensus forecast of a 10% rise in the S&P 500 over the year. In Britain, Investment Week's poll of fund managers' year-end targets for the FTSE 100 ranged from 6,400 to a strikingly specific 7,386. But there was already "concrete evidence that the effects of the credit crunch were spreading to the wider economy", as Alan Clarke of BNP Paribas put it. As the fundamentals deteriorated, earnings began to fall and the frozen credit markets showed no signs of thawing, stocks continued to tick down.
Markets went "completely insane", says Edmund Shing of BNP Paribas, with record drops amid a flurry of other bank bail-outs and mergers, combined with forced selling by hedge funds. At their October-November lows, the S&P 500 had returned to levels last seen in 1997 and Japan's Topix was showing no gain since 1983.
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