Stocks ended mixed Monday, capping a dismal quarter and first half marked by rocketing oil prices and battered financials.
The Dow industrials and S&P 500 finished the session slightly higher, while the Nasdaq shed 1 percent. The Dow ended just 20 points shy of bear-market territory.
After breaking through its March low last week, the Dow has been unable to commit to bear-market territory, capitulation or a rebound, and trading volume has been thin. The whole market is in a kind of limbo: While major indexes revisit March lows, small- and mid-cap stocks are well off their March lows, and in fact, finished the quarter higher.
What's keeping the market from completely throwing in the towel?
"It wasn't that long ago that we went through a very bad market," said Nadav Baum, managing director of investments at BPU Investment Group, referring to the market boom of the late 90s and the bust that followed in 2000. "That's why people aren't too freaked out," he said. "They figure - 'Hey, I just went through it. I held on and I did pretty good ... how much worse can it get this time?'"
"I think the other thing is that people realize that this oil thing is going to come down -- there's probably $30 or $40 worth of speculation" in the per-barrel price, Baum said. "How does something go from $40 to $150 in two years and not come back down?"
Oil ended the quarter at $140 a barrel -- that's a 38 percent gain in this quarter alone, and a whopping 46-percent jump for the first half. .
"I think oil will settle between $85 and $100 a barrel and be there for a while," Baum said.
June marked the worst one-month drops for the Dow and S&P since September 2002, with the Dow off more than 10 percent for the month and the S&P down more than 9 percent.
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For the quarter, the Dow shed 7.5 percent, and the S&P lost 3.2 percent, while the Nasdaq gained 1.1 percent. The S&P mid-cap index and Russell 2000 gained 5.4 percent and 1.7 percent, respectively, which is what helped the S&P post a smaller loss than the Dow.
The was the Dow's third straight quarterly decline, the first time that's happened since the late 1970s.
"I think that the market is in a secular bear market," Steven Lehman, a fund manager for Federated Market Opportunity Fund, told CNBC. "This was not a normal cycle –- It was a Golden Era built mainly on debt ... the Golden Era is over but the debt remains," Lehman said.
"Economic and earnings disappointments lie ahead at a time when equity valuations are very high," Lehman said.
Lehman is currently long on gold and short technology and emerging markets.
"I think technology analysts and strategists in general have been much too optimistic about technology-sector earnings and growth prospects, particularly in the international operations," Lehman explained. "We think that the tech sector has quite a bit further to fall."
Indeed, tech stocks were among the day's worst performers, with the tech-heavy Nasdaq down 1 percent from Friday's close. Yahoo , Apple and ADRs of Research In Motion all declined.
Financials were down 2.1 percent, making them the biggest decliner among 10 key S&P sector indexes. The sector has lost an astounding 31 percent since the year began.
Lehman Brothers shed 11 percent during the session to close at $19.81, an eight-year low and 70 percent below where it started the year.
Richard Bove, an analyst with Ladenburg Thalmann, said Merrill Lynch may be forced to raise equity in the third quarter and sell a $1 billion stake in Bloomberg.
Bove also cut his 2008 and 2009 earnings estimates for Morgan Stanley .
The Worst of the First Half
Financials accounted for three of the top five Dow decliners for the first half, including AIG , which is off 55 percent, Citigroup , which fell 43 percent and Bank of America , which is off 42 percent.
Rounding out the top five Dow decliners of the first half were General Motors , off 54 percent, and Merck , down 35 percent.
GM shares are now trading at a more than 50-year low. June U.S. sales reportsfrom major auto makers are due out on Tuesday and analysts say this could be one for the history books: It may be the month that Toyota eclipses GMas the leader in U.S. auto sales.
MBIA bounced 5.3 percent from an early slide after the company shot back to defend itself amid rumors that it had sold municipal bonds to meet payments triggered by a recent Moody's downgrade.
"Contrary to recent statements in the media, MBIA is not in a 'tenuous situation,'" said C. Edward "Chuck" Chaplin, the firm's finance chief. "The holders of our insurance policies, GICs, medium-term notes and other debt instruments can rest assured that MBIA will meet its obligations to them as it always has -- on time and in full," he said.
In an otherwise quiet day for earnings reports, H&R Block, the nation's No. 1 tax preparer, said it swung to a quarterly profitfrom a loss a year earlier as the weak dollar helped the company cash in on exchange rates from its business in Canada. The results beat expectations -- H&R Block posted a profit of $2.11 a share, ahead of analyst estimates of $2.03 -- as did the company's guidance. Its shares climbed 2.8 percent.
Earnings season officially kicks off next Tuesday with a report from Alcoa .
The Best of the First Half
Wal-Mart was the biggest Dow gainer of the first half, jumping 18 percent. The discount giant said Sunday that it will begin replacing logos on the front of its U.S. stores with a new design beginning this fall.
The revamped logo comes as Wal-Mart continues to tweak its image after facing criticism from union-led groups and local communities across the nation opposed to big-box store developments.
Rounding out the top five Dow performers of the first half were: IBM , which rose 10 percent, Chevron , which gained 6.2 percent, Caterpillar , which added 1.7 percent and Alcoa, which fell 2.5 percent.
General Electric shares ticked higher after Lehman Brothers' Robert Cornell said GE shares "could be near a bottom," citing the fact that, historically, GE tends to trough at a 25 percent discount to the S&P 500 and are currently at 18 percent.
ArcelorMittal Chairman and CEO Lakshmi Mittal is looking at entering the takeover battle for the Rio Tinto mining group, the Financial Times reported on Monday, quoting people familiar with the situation.
Mittal, main shareholder at ArcelorMittal, was keen to secure larger supplies of iron ore, said the newspaper.
Also, eBay suffered another legal blow as a court in France ordered the online auction service to pay $61 million to luxury goods group LVMH for allowing sales of counterfeit items on the site.
In economic news, the Chicago Federal Reserve reported that its gauge of Midwest business activity contracted in June, the fifth straight month of decline, but the drop was less severe than expected. Manufacturing in the Texas area slowed in June.
The Chicago and Dallas reports are the last regional reports ahead of the national manufacturing reading from the ISM, due out on Tuesday. Among the other closely-watched regional reports, manufacturing activity in the Philadelphia area and New York regionslowed more than expected.
It's a shortened trading week due to the Fourth of July holiday on Friday but the week is big on data. Due out on Thursday is the June jobs report.
Asian stocks closed mostly lower, with skyrocketing oil prices remaining the key theme, while in Europe, shares closed higher, buoyed by energy stocks, but ended the first half down 20 percent as surging crude prices have raised inflation worries. Euro-zone inflation came in at a record 4 percent for June, according to initial estimates.
TUESDAY: Auto sales; ISM manufacturing index; construction spending; Fed's Lockhart speaks; Earnings from Constellation Brands, Apollo Group
WEDNESDAY: Weekly mortgage applications; factory orders; crude inventories; earnings from Family Dollar
THURSDAY: Jobless claims, Jobs report, ISM services index; Stock market closes at 1pm ET and bond market closes at 2pm ET
FRIDAY: All major U.S. markets closed for Fourth of July holiday
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