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Dow Rises To End Worst Year Since 1931

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DOW RISES TO END WORST YEAR SINCE '31

Wall Street closed out its worst year since the Great Depression on Wednesday after an unstoppable credit crisis and a dreadful economic outlook left investors questioning their faith in stock markets.

A string of financial disasters culminating in the collapse of Lehman Brothers in the middle of the night in September precipitated the third biggest percentage loss ever for the Dow Industrials and the broad S&P 500.

By Nov. 20, the S&P had hit an 11-year low, destroying more than a decade of returns for many Americans and wiping out memories of record highs reached just 13 months earlier.

"It was plain ugly out there," says Kurt Brunner, a portfolio manager with Swarthmore Group. "All in all, it's something that I truly hope is once-in-a lifetime thing."

Nonetheless, U.S. stocks managed to close the year on an up note on Wednesday as fresh efforts to stem the recession from Washington lifted equities for the second consecutive session.

For the year, the Dow fell 33.8 percent, for its bleakest year since 1931; the S&P skidded 38.5 percent; and the Nasdaq posted its worst year ever, with a 40.5 percent drop.

Strategy Session with the Fast Money Traders

It's not all gloom and doom. Mortgage rates are down and credit markets are unfreezing, muses Guy Adami. And the S&P closed above 900. We could be setting up for a nice rally.

It's true that the S&P closed above its 50-day moving average, explains Quint Tatro. But I find it hard to believe (it's sustainable) because volume is so light. The market has a lot of work to do before it improves from a technical perspective.

919 is the big number on the S&P, he adds. We need to see a higher high before we can establish an intermediate uptrend -- we're still a long way from that, Tatro adds.

Also, the market is going to have to digest a lot of bad news in the first quarter, adds Joe Terranova. And we're going to draw comparisons between 1932. (Click here to find out whether 2009 is 1932 all over again.)

Does that mean the market isn't going anywhere? A decade of sideways trading can't spell ratings magic for us, jokes Jeff Macke.

I seriously think it’s time to embrace trading and say goodbye to the buy and hold strategy adds Tatro.

Talk about quick trades. If you were long Rohm & Hass early in the week, you could have made your year, muses Guy Adami.

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BANKS JUMP TO END YEAR ON THE BRINK

The Financial Select Sector SPDR finished the year in the green. But that hardly masks the fact that financials dropped 57% in 2008.

Meanwhile, CNBC has learned that Citigroup plans to announce a new executive compensation system in which the top executives at the firm will see sharp reductions in their yearly pay packages if the firm's fortunes continue to sour.

The plan comes just weeks after Citigroup received a second, $20 billion injection of capital from the federal government and promises to cover more than $300 billion of the megabank's exposure to toxic mortgage-backed securities.

It’s impossible to know how to value the banks, says Jeff Macke. Long financials is a hope trade because you’re hoping there’s no more toxic assets on their balance sheets.

I think there will be a premium paid in 2009 for companies and sectors that have strong healthy balance sheets, adds Joe Terranova.

I think Goldman is going to retest $78 and I think it’s a buy at that level, adds Guy Adami.

I watch Goldman, Citigroup and Morgan everyday and I think they’re going nowhere, counsels Quint Tatro. Until they get up and move this market probably won’t go anywhere – and that’s a while from now.

S&P’s 3 Worst Sectors in 2008

Financials - 56%
Materials - 45%
Information Technology - 42%

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OIL SURGES 14%

US crude oil ended 2008 up 14 percent a barrel in thin pre-holiday trade on Wednesday, tracking a jump in gasoline as a slowdown in domestic refinery activity sparked fears of tightening fuel supply this winter.

U.S. crude oil futures for February settled up $5.57 to $44.60 per barrel, but down 54 percent from the $95.98 on the last day in 2007.

Meanwhile, gold rallied late on Wednesday and ends the year as one of the only commodities to post a gains year-on-year as the rest of the commodity sector was ravaged by investment funds deleveraging.

Commodities In 2008

Oil - 54%
Copper - 54%
Gold + 6%

Oil went up Wednesday because gasoline rallied, explains Joe Terranova. And keep an eye on nat gas – it could be a tough first quarter for this commodity.

You can’t turn the consumption animal back on, adds Jeff Macke. You can trade it but it’s a broken bubble.

The United States Oil Fund had its largest volume day Wednesday, explains Quint Ttaro. I think you could get long with a stop at recent lows for a trade.

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APPLE, GOOGLE SHED 50% IN 2008

It’s goodbye and good riddance to 2008 as far as Apple and Google are concerned. Apple slipped 56% this year after making gains of 135% in 2007. Google meanwhile lost 55% about the same as its gains last year.

I wouldn’t run into Apple, counsels Guy Adami. On a valuation basis the stock is interesting but I’d wait.

Apple is trading poorly whether Steve Jobs is ill nor not, adds Quint Tatro. Apple and Google look like they’re setting up for serious declines if they break recent lows. I’m short both.

Until Google is gutted I wouldn’t touch that stock, adds Jeff Macke.

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GM A 2009 TURNAROUND STORY?

A $5 billion government bailout aimed at reviving General Motors ability to make car and truck loans has dealers hopeful that cash-strapped consumers will return to their showrooms.

GMAC Financial Services, the automaker's troubled financing arm, on Tuesday loosened its tight lending standards, which in recent months have made it more difficult for would-be car buyers to get loans. GMAC's move marks the first time that a financial institution has said it will use money from the $700 billion bank bailout to offer more affordable credit to consumers.

The stock has had every reason to rally over the last few days and it hasn’t, explains Guy Adami. The stock is fine for a trade but I wouldn’t buy and hold.

Understand they have $11 billion worth of bills – and they only have $9 billion in cash, adds Joe Terranova.

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CALMER DAYS AHEAD?

Wall Streets favorite measure of fear, the VIX touched it’s lowest level since October and fell below the psychologically important level of 40. Will 2009 be a smoother ride?

If you get a spike in volatility I’d sell it, counsels Joe Terranova. And I’d do it with options.

The VIX spells complacency, counters Quint Tatro. We have to embrace the possibility that the market could go down in 2009.




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Trader disclosure: On Dec. 31st, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Macke Owns (SDS), (MCD), (WMT), (MSFT), (TM); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Tatro Owns (JPM); Quint Tatro Is The Principal Of Tatro Capital; Tatro Capital Owns (TBT), (DXO), (APOL); Tatro Capital Is Short (AAPL), (GOOG), (MCD), (XOM); Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV); Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.; Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (OFC), (DLR), (EXR), (IGE), (MAC), (DBC), (DBV), (SKT), (UA), (CLB) : Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights

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