Grueling first six months for 2008

This was the worst first half for the Dow Jones industrials since 1970, when the country fell into recession. The more diverse Standard & Poor's 500 and Nasdaq composite indexes had their worst first half since 2002, when Wall Street was still suffering through the aftermath of the dot-com bust, the Sept. 11, 2001, terror attacks and a recession.

On Monday, 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.

Fireworks Shortage Could Dampen July 4thAnother Record: Oil Prices Pass $143Oil Creating Backyard Millionaires 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 is down nearly 20 percent from its 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.

A street sign is seen in front of an American flag hanging on the front of the New York Stock Exchange.

More Photos"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. The Dow rose 3.50, or 0.03 percent, to 11,350.01.

The S&P 500 index rose 1.62, or 0.13 percent, to 1,280.00, and the technology-laden Nasdaq 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:

—In just the month of June, the Dow dropped 10.19 percent; the S&P fell 8.60 percent, and the Nasdaq lost 9.10 percent.

—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 first half, the Dow is down 14.44 percent; the S&P lost 12.83 percent; and the Nasdaq has fallen 13.55 percent.

—Since their high point last October, the Dow gave up 19.87 percent; the S&P dropped 18.22 percent; and the Nasdaq is down 19.80 percent. A 20 percent drop from a market peak is considered the start of a bear market — although many analysts say Wall Street already has a bear market mentality.

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.

Trader Steven Kaplan watches the numbers as he works on the floor of the New York Stock Exchange,... Trader Steven Kaplan watches the numbers as he works on the floor of the New York Stock Exchange, Friday June 27, 2008. Wall Street has suffered another big loss, with the Dow Jones industrials falling more than 100 points amid worries about high oil prices and further fallout from the credit crisis. (AP Photo/Richard Drew)

More Photos"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 consolidated volume came to 4.91 billion shares, compared to 5.74 billion on Friday.

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.

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