Six years of stock gains disappeared as the economy crumbled and markets crashed around the globe, shaking the confidence of professional and individual investors alike.
But the year's chaos went far beyond the stock market. Credit markets that drive lending became paralyzed, plunging the country further into recession and touching off an unprecedented rush for the safety of Treasury bills, notes and bonds. Commodities markets, usually ignored by most investors, soared on speculative buying and then collapsed when it became clear that the world economy was in trouble and that record high prices, including oil's peak above $147 a barrel, were unjustified.
"It was a feeling of flailing," said Jerry Webman, chief economist at Oppenheimer Funds Inc. "People couldn't get a grasp because there were not obvious historical precedents."
By the year's end, many market analysts were predicting that 2009 would be better, but that recovery would be slow as investors, shaken by the devastation to their portfolios, U.S. companies and the overall economy, remain reluctant to buy.
"I think this may be much more of a show-me market than we're used to. The market is going to be looking for some stabilization, increases in earnings, a few more positives before it begins to recover," said Webman.
Wall Street's stats for 2008 provide evidence of how stunningly terrible the year was:
The average price of a share listed on the New York Stock Exchange plunged 45 percent to $41.14 by the end of the year from $75.01 a year earlier.
The Dow Jones industrial average fell 33.8 percent for the year and 38 percent from its record close of 14,165.53 in October 2007, making it the Dow's worst year since 1931, when the country was in the midst of the Great Depression.
The Standard & Poor's 500 index, the indicator most watched by market pros, slumped 38.5 percent in 2008 and 44.8 percent from its 2007 high of 1,565.15.
Investors lost $6.9 trillion as relentless selling reduced the value of stocks across the market. That amount, measured by the Dow Jones Wilshire 5000 Composite Index, represented 38 percent of the total value of U.S. stocks at the start of 2008.
Yet the last week of the year was almost serene.
On Friday, the Dow rose 108.00, or 1.25 percent, to 8,776.39.
Broader stock indicators also rose. The Standard & Poor's 500 index gained 12.61, or 1.42 percent, to 903.25. The Nasdaq composite index rose 26.33, or 1.70 percent, to 1,577.03 and ended the year down 40.5 percent. It's down 44.8 percent from its highest level in March 2000. The tech-heavy index peaked in the dotcom bubble.
The Russell 2000 index of smaller companies rose 16.68, or 3.46 percent, to 499.45.
The tranquility was a welcome change in a year that was rocky from the start as worries about the financial system were fed by reports that banks had suffered billions of dollars in losses on securities tied to defaulting mortgages. The forced-sale of Bear Stearns Cos. in March unnerved Wall Street, yet it still managed to right itself through the spring.
The surging price of oil and other commodities dealt another blow to the market. As a barrel of crude leaped from $112 at the beginning of May to a once-unthinkable $147.27 on July 11. With retail gasoline prices soaring above $4 a gallon, stocks fell amid fears that consumers would have to cut back their spending because of higher energy prices.
But the market again stabilized - until the September bankruptcy of one of the most venerable Wall Street investment firms, Lehman Brothers Holdings Inc., set off a panic on Wall Street and in the credit markets. Banks, fearing that other financial institutions would be unable to repay, stopped lending to each other. The market for short-term corporate debt known as commercial paper was frozen. Interest rates soared.
The only thriving part of the credit markets was government debt. Investors desperate for safety poured money into Treasury issues, particularly short-term bills. The yield on the three month bill plunged to zero, and briefly to a negative return, as investors decided no return or a slight loss was better than the losses on Wall Street or in commodities.
Wall Street's crash in 2008 didn't come in one day like the famous 22.6 percent plunge of Oct. 26, 1987. In many ways it was more nightmarish than Black Monday because there wasn't a quick end to the selling and record volatility.
From Sept. 15 to Nov. 20, when the Dow fell to a close of 7,552.29, the depths it had reached in the bear market of 2002, the blue chips rose or fell by triple digits 41 trading days out of 49.
Relative stability returned to the market during December. But Wall Street's horrific performance has cast a new mold for modern bear markets, often defined as a decline of more than 20 percent, and made expectations for 2009 so low that any reduction in the economic bloodletting would be considered a victory.
"Everyone is so down in the dumps about everything that I do think it gives you the opportunity to have a positive surprise if maybe the economy does turn quicker," said Bill Stone, chief investment strategist at PNC Wealth Management.
Wall Street is hoping for signs of recovery by the second half of 2009, including evidence the housing market has hit bottom, increased lending by banks and a drop in unemployment accompanied by increased consumer spending.
But for the near future economists and market experts predict more bad news.
"I have yet to see anyone who anticipates that the first half of next year is going to be rosy," said Dean Junkans, chief investment officer at Wells Fargo Private Bank.
But even a modest improvement in the economy, which has been in recession since last December, could help stocks extend their recent run.
"If you're standing still, walking is a pickup of speed," said Alan Levenson, chief economist at T. Rowe Price Associates Inc.
The government has helped calm markets with a $700 billion rescue of the financial sector and by agreeing to provide financing to the major U.S. automakers. The Federal Reserve slashed its benchmark interest rate to near zero to reduce borrowing costs.
Cheaper oil prices - it settled at $44.60 a barrel on Wednesday
are expected to help bolster the economy, draining less money away from consumers and businesses. The declining prices of other commodities, which have come down in response to rapidly waning demand for raw materials around the world, should also help.
In addition, some analysts believe the market will improve because so many investors have pulled out, leaving little room for more selling.
"Given the nasty carnage how much further risk is there?" said David Darst, chief investment strategist for Morgan Stanley's global wealth management group.
Still, the credit markets remain nearly stagnant as banks continue to be anxious about lending.
Corporate forecasts in January could help shape investor sentiment, even as expectations are modest.
David Kelly, chief market strategist at JPMorgan Funds, said the prospects for the market are "exceptionally uncertain."
For the market to hold its advance from November he contends the calmer trading of the past month must continue and president-elect Barack Obama's plan to boost the economy with spending on infrastructure must show it is working quickly.
"The great risk is we are in a wait-and-see economy," Kelly said. "What Obama needs to do is turn this into a do-it-now economy, give people a reason to buy."