2008 could nail its spot as worst year ever for Wall Street

By Leah Schnurr

NEW YORK (Reuters) - As the stock market heads into the last week of the year, what was inconceivable just 12 months ago is now a stark possibility: 2008 could be the worst year ever for Wall Street.

The market's most tracked benchmark, the S&P 500, is down 40.6 percent since last year's close with only three trading days left in 2008. Given the market's hair-trigger volatility this year, that's just one bad day away from surpassing 1931's 47.1 percent drop, the biggest yearly decline ever.

As it is, the market's swoon this year will cement 2008's place in history by at least one measure: eviscerated wealth. A record $7.3 trillion of stock market value has been obliterated this year, according to the Dow Jones Wilshire 5000 index, the broadest measure of U.S. equity performance.

Investors ran for the exits this year as a collapse originally thought to be contained to the U.S. home mortgage sector morphed into a full-blown global credit crisis that now threatens global recession.

The fallout from frozen credit markets permeated all sectors from banks to autos to resources, while unemployment climbed, house prices plummeted and cash-strapped consumers curtailed their spending.

"How to sum up a year that has been plagued with financial crisis in every form and fashion that you could see and, at the same time, we have an economy that's just imploding on itself," said Jocelynn Drake, market analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

"If 2008 proved to be anything, I think it was a reality check for a lot of people."

A CATACLYSMIC YEAR

Market watchers said it was a year unlike any they have ever seen. Among the casualties: the restructuring, acquisition or disappearance of such heavy hitters as Bear Stearns, AIG, Washington Mutual, Merrill Lynch and Lehman Brothers.

The global downturn forced central banks around the world to mount coordinated interest-rate cuts in an attempt to stimulate growth, pushing rates aggressively lower.

Earlier this month, the U.S. Federal Reserve again cut rates to almost zero and pledged to undertake more unconventional methods to fight off the year-long recession.

While no one is feeling celebratory as the year draws to a close, analysts say the Fed's offensive has bolstered optimism by showing the central bank is willing to take whatever steps are necessary to get credit flowing again.

REASONS FOR HOPE

The new year will also bring a new White House administration when Barack Obama is sworn in as president in January. Hopes for a new stimulus package have also buoyed the market of late as Obama's picks for his economic team have been greeted favorably.

Obama is expected to unveil a government spending program in areas including infrastructure building to reinforce boosts from the Fed.