NEW YORK Wall Street ended an arduous first half quietly Monday, closing mixed as investors again based their trades on what has become the dominant force in the market: the price of oil. The major indexes closed out the first six months of 2008 with double digit declines, and are perilously close to the levels of a bear market.
Stocks pulled back in the early going as oil reached yet another record, this time, above $143 a barrel. The market then gathered some strength as crude lost momentum and allowed some investors to consider buying equities that have been turned into bargains by months of volatility.
There is little expectation on the Street that the chaos of the first half will soon end. Besides the punishing effect of higher oil, which threatens the stifle consumer spending and in turn, an economy still struggling to grow, the stock market is still contending with warnings of losses at financial companies the continuing fallout of the housing slump and the credit crisis that began nearly a year ago.
These problems that show little sign of being resolved soon left Wall Street in tatters as the first half ended. The Dow Jones industrials are down nearly 20 percent from their record high of 14,198.09, set in October, putting the blue chips on the threshold of a bear market. The market did have a spring recovery, which began in March, but it foundered in May as the combination of credit problems and higher oil rattled investors.
Financial stocks, which were leading the market higher before the credit crisis struck, ended the half with even steeper losses than anyone expected just a few months ago, there were predictions that the credit crisis would soon end. Airline stocks have been devastated by the rising price of oil. Detroit automotive stocks, as ever battling competition from overseas makers, are also being pummeled by the sagging economy and higher energy prices.
Investors wondering how the markets will fare will likely devote unusual scrutiny to parsing reports on the economy and corporate earnings, which will arrive in force in the coming weeks. And right now, there appears to be little optimism.
"We've seen year-over-year estimates decline," said Christopher Johnson, president of Johnson Research Group in Cincinnati. "It'll be a critical season."
Investors made relatively small bets ahead of the coming earnings and as the quarter moved toward a close. According to preliminary calculations, the Dow rose 3.50, or 0.03 percent, to 11,350.01.
Broader stock indicators were mixed. The Standard & Poor's 500 index rose 1.62, or 0.13 percent, to 1,280.00, and the technology-laden Nasdaq composite index fell 22.65, or 1.21 percent, to 2,292.98.
The day's modest moves stood in contrast to the heavy losses the market has suffered:
For the quarter, the Dow fell 7.44 percent; the S&P lost 3.23 percent, while the Nasdaq had an anemic 0.61 percent gain.
For the year, the Dow is down 14.44 percent; the S&P lost 12.83 percent; and the Nasdaq has fallen 13.55 percent.
Light, sweet crude, which began the year at $96 a barrel, fell 21 cents Monday to settle at $140.00 on the New York Mercantile Exchange while retail gasoline set a new national average of $4.086 a gallon, according to a survey of stations by AAA, the Oil Price Information Service and Wright Express.
Bond prices fell. The yield on the benchmark 10-year Treasury note, which tends to move opposite its price, rose to 3.98 percent from 3.97 percent late Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc., contends that the market must first see nervous investors pull more money from the stock market before Wall Street will begin to show meaningful signs of stabilizing. He said the coming earnings reports for the second quarter could indicate that while some parts of the economy, like the financial sector, are struggling, others might show decent earnings.
"With the Dow nearing bear market territory it's going to keep investors on edge," he said. He's looking at economic data due this week on manufacturing and employment as possibly offering some reassurance to investors.
"I think the economic data is going to indicate an economy that is not slipping into a full-blown recession but one that is just limping along," Cardillo said.
Monday's economic news confirmed that the country is still struggling. The Chicago Purchasing Managers' report on manufacturing, which tracks business conditions across Illinois, Michigan and Indiana, rose to 49.6 for June from 49.1 in May. However, a reading below 50 signals economic contraction.
Other important readings are due this week. The Labor Department is expected to release a June employment report Thursday that is expected to show the sixth straight month of jobs losses and only a modest improvement in the unemployment rate. The Institute for Supply Management is expected to release its June readings on the manufacturing and service sector, and the Commerce Department will report on construction spending in May.
Johnson said the S&P is flirting with new lows for the year but that investors don't seem as fearful as they did when the market fell sharply in March. He said that indicates that the market likely has more room to fall before stocks can begin to sustain sizable upward moves.
The Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," has risen in recent weeks but stands only at about 24, well below the high of nearly 38 it logged earlier this year.
Johnson said Wall Street was finally seeing the pullback that many had expected earlier this year when investors grew nervous about massive write-downs at financial companies.
"Most people did not expect the stock market to rally as well as it did from March to May," he said. "Everybody thought that the market rally in March would be a little bit of a fake-out."
But investors fears about the financial sector remain, even if they are not as pronounced as at the start of the quarter. Financial stocks led broader indexes lower during the second quarter, and have been especially troubled since the near collapse of Bear Stearns in March. The investment bank was spared after the Federal Reserve orchestrated its sale to JPMorgan Chase & Co., but that did little to assuage fears about the industry.
Since last summer, banks and brokerages have written down more than $300 billion of mortgage-backed securities and other risky investments. And later this month even more losses are expected when companies like Citigroup Inc. and Merrill Lynch & Co. report second-quarter results.
Investors have turned away from the sector, waiting to see when the hemorrhaging might stop. The KBW Bank index, which tracks 24 financial institutions, is down 32 percent this year alone as most of its components trade near 52-week lows.
Declining issues outpaced advancers by about 8 to 7 on the New York Stock Exchange, where volume came to 1.61 billion shares.
The Russell 2000 index of smaller companies fell 8.48, or 1.21 percent, to 689.66.Overseas, Japan's Nikkei stock average fell 0.46 percent. Britain's FTSE 100 rose 1.74 percent, Germany's DAX index fell 0.06 percent, and France's CAC-40 rose 0.85 percent.