8:27 am - Stocks end Oct. with worst performance in 21 years

Stocks end Oct. with worst performance in 21 years NEW YORK (AP) - 1031b--wallstreet What is it about October and stocks? The month that brought the 1929 crash, Black Monday in 1987 and othermidautumn market crises delivered its worst monthly performance in 21 years. And not even the best week in 34 years could keep the market from sufferinganother terrible October this year. Despite another big advance on Friday, paper losses in the U.S. stock marketcame to $2.5 trillion for the month, according to the Dow Jones Wilshire 5000Composite Index, which represents nearly all stocks traded in the United States.The 17.7 percent decline was the worst since the 23 percent drop in October1987. The Dow Jones industrials rose 144 points on Friday, giving the market itsonly back-to-back gains of the month and its best week since mid-October 1974. But it was a trick-or-treat month. Fear coursed through the markets in a waythat hadn't been seen for more than two decades, causing rushed selling byeveryone from middle-class investors to multibillion-dollar hedge funds. The Dow plummeted 2,400 points in the month's first eight trading days, andby Friday there were only three days when it didn't finish the session with atriple-digit movement. October was the month when the credit crisis that started squeezing WallStreet institutions earlier in the fall spilled into the mainstream, hamperingbanks' ability to lend and consumers' ability to borrow, and ultimately takinghuge chunks out of retirement savings and other stock funds. Meanwhile, the ripple effect spread to the rest of the world economy andcaused similar carnage on stock markets from London to Singapore and beyond amidfears of a deep recession. The Dow finished down 14 percent in October, and world markets were worse.As of Thursday, it was the worst month on record for stock markets in developedcountries as measured by the MSCI World Index, which lost 19 percent of itsvalue. Emerging markets suffered even more, shedding 29 percent. "It seems like it all came together in October," said Denis Amato, chiefinvestment officer at Ancora Advisers. "You had people recognize that thingswere worse than normal with the credit crisis. It just sort of collapsed allinto that one period." Experts aren't sure why October has been such a cursed month for stockmarket meltdowns -- although September has registered the biggest declines ofany month historically. But October's reputation is well known on Wall Street, as is the fact thatstocks perform much worse during the six-month period ending with October thanduring the rest of the year. Since World War II, the Standard & Poor's 500 indexhas gained 7 percent annually from November through April and just 1 percentfrom May through October. Deborah Lucas, professor of finance at Northwestern University's KelloggSchool of Management, thinks it's unfair to suggest that individual investorspanicked or acted irrationally in the past month. "There was a basis for the fear," she said. "There was a desire to put theirmoney somewhere safer. If everyone on Wall Street has rushed out the doors, whyis it that we tell everybody on Main Street they shouldn't panic?" The seeds of October's losses were sown in September. Investors already werefeeling jittery about the deteriorating financial outlook as the consequences ofthe collapse in housing prices crept into every corner of the economy. The news got stunningly worse on Sunday, Sept. 14 -- a pivotal day that setstocks' meltdown in motion. That was the day the government refused to bail outLehman Brothers Holdings Inc. after a weekend of intense negotiations, leavingthe investment house to file for bankruptcy the next day. The fallout from the largest bankruptcy in U.S. history was enormous andmore than government officials foresaw. It was the second failure of a giantinvestment bank, following Bear Stearns Cos. earlier in the year, and it removedan important foundation from an already-stressed financial system. Banks did not want to lend to anyone, which threatened such basic businessoperations as making payroll and made it difficult for consumers to get auto orhome loans. It became clear something had to be done or the economy would collapse inthe absence of lending. But it proved too late for even a $700 billion emergencyrescue of financial institutions to stop the market carnage. The House's rejection of the bailout on Sept. 29 sent the Dow tumbling athen-record 777 points and set the stage for an even worse October. Congress passed the rescue package on Oct. 3. But by then a global alarm hadbeen sounded about the likelihood of a punishing worldwide recession, and mutualfunds, pension funds, hedge funds and individuals began fleeing the market. TheDow plummeted from a high of 10,882.52 on Oct. 1 to the month's in-trading lowof 7,882.52 on Oct. 10. Rob Lutts, chief investment officer at Cabot Money Management in SalemMass., sees the stress etched on people's faces when he is at the YMCA orelsewhere around town. "They're hurting. Their 401(k) is down," he said. "There is morehand-wringing when I talk to people now than I have seen in several cycles." The Dow recovered and then plunged lower again during a month that setrecords for volatility and for the biggest point losses and gains during asingle session. On Monday the blue-chip index closed at a 5 1/2-month low of8,175.77, but it never closed below 8,000. The gains on Thursday and Friday left it up a whopping 11 percent for theweek. But the Dow remains down 34 percent from the high set just 12 1/2 monthsago. With fear having subsided, the market's future now hinges on the health ofthe world economy. Governments worldwide have followed Washington's lead intaking unprecedented action to prop up the financial system, but it's not clearwhat impact that will have in a global recession. "The global policy action has been enormous," said Joe Balestrino, aportfolio manager at Federated Investors Inc. "The system is now, I'd say, openfor business. Now the question is, will it occur?" Tim Paradis reported from New York, Dave Carpenter from Chicago. AssociatedPress Business Writer Madlen Read in New York also contributed to this report. Copyright 2008 Associated Press. All rights reserved. This material may not be