Wall Street makes it official: The bear is here

No more waiting: We’re now in a genuine bear market for the Dow Jones industrials and, for the second time this year, for the Nasdaq composite.

Zapped by another jump in oil prices, the Dow closed today at 11,215.51, down 166.75 points, or 1.5%. That left the blue-chip index off 20.8% from its record closing high of 14,164.53 reached on Oct. 9.

The tech-heavy Nasdaq slid 53.51 points, or 2.3%, to 2,251.46, leaving it down 21.2% from its 2007 peak. The Nasdaq already had visited bear territory briefly in March, when it was off as much as 24% from its high before rebounding.

A drop of at least 20% is considered the threshold for a bear market. Many other broad-market indexes haven’t yet joined the bear fest, but they’re all close. "I'd say it's only a matter of time," said Art Hogan, veteran market analyst at Jefferies & Co. in Boston.

The Dow’s slide under the 20% threshold wasn’t a shock, given that the index has been battling to stay above it for days. But this still is a bell-ringer for investors, Hogan says. The last broad-based bear market on Wall Street was in 2000-02.

Crossing the 20%-loss line "says the market is struggling, and it’s struggling for some very credible reasons," he says.

The catalysts for today’s sell-off: the usual suspects, and a few more.

Oil rose to a fresh record high, nearing $144 a barrel. And just to stick the inflation knife deeper into financial markets, copper, too, surged to a record because of miners’ strikes in Peru. (Here's your bull market: The CRB index of 19 major commodities now is up 32% year to date.)

Meanwhile, the dollar slumped, an index of home builders’ stocks fell through its previous 2008 low, and General Motors’ shares dived 15% to a new 54-year low of $9.98 after a Merrill Lynch analyst warned that bankruptcy was "not impossible" for GM.

All of this is leading up to another potentially big day for markets on Thursday, when the government reports on June employment trends (a net loss of 60,000 jobs is expected) and the European Central Bank is expected to raise its benchmark short-term interest rate for the first time in a year, citing inflation. The ECB’s move could slam the dollar once again -- if currency traders didn’t get most of that out of their systems today.

Oh, and U.S. investors and traders will have to cram their responses to the jobs report and the ECB into a half day, because markets will close at 10 a.m. PDT in advance of the Fourth of July holiday. That could just stoke the volatility meter tomorrow.

Who’s ready for a long weekend?

Photo: Oh sure, they look cuddly enough when they're young. Don't be fooled. Polar bear cub Flocke at the Nuremberg zoo. TImm Schamberger/AFP-Getty Images

Comments

[RonNV]

The economy is hurting due to the high cost of gasoline and the offshore suppliers have help create the problem. We need to get the economy moving and we therefore need to maintain low tax situation in this country. An increase in taxes to soak the rich is a really stupid idea. Higher taxes will kill all business incentives and therefore create an even bigger problem. Our dependence on foreign oil needs to be dealt with NOW.

[Giff Beaton]

It's a BEAR! Should we scare it off by banging pots and pans together? Should we roll over and play dead? And how many financial advisors does the average investor really need to to find out how Bears choose to behave in the woods? The answers to these hard questions and more will not be known until President Bush's Darwinian economic policies go into permanent hibernation... and none too soon...................you're getting sleepy George... you're getting very sleepy...

[Jose D]

Increasing the top tax rate from 35% to 38%, even 40% wouldn't affect the top income earners that much. So stop worrying about it. It would actually go a long way to help balance the budget by paying for part of these wars, and help the weak dollar.
If anyone is to blame it is the Fed and their "craft" of over-printing dollars! When is Bernanke going to realize that we need to feel the pain of higher interest rates in order to bring back commodity prices back to reasonable levels.
All you fools worried about the top tax level going from 35% to 38% need to let it happen because balanced budgets DO MATTER!

[Karl in Burbank]

LA Times talking down the economy again. If its a bear market, that means it is time to buy!

[wpo]

What about all of this redefining of what a recession is ? We are not in a recession, repeat after me, we are not in a recession. Listen up. political manipulation of fiscal stuff ain't new, but your attempt might just be a new low.

[martscan]

Could there ever be a more classic straddle than short the DX and long oil or the grains? Not since I began trading in 1963 have I made so much money...and with a no-brainer to boot!

[Brigham]

Peak Oil will slowly destroy the very foundation of globalization, and therefore, the global/US economy. People just don't realize that there geological limitations to what this Earth can provide its inhabitants. Humans, just another organism on the planet, have been raping the Earth for all it has, all in the name of "economic prosperity." In the end, as people realize that it isn't OPEC not willing to us more oil, but that the global oil production has peaked, there will be chaos and a lot of finger pointing as civilization beings to fall apart. Humans won't know what hit them. People don't understand that the economy is directly dependent on the environment and its resources. When the economic paradigm is UNSUSTAINABLE (look it up in the dictionary if you don't know what that really means), then one day - whether it's now or 10 years from now - the system will collapse.

[Richo]

Here we go folks, this baby is starting to get some legs. All that needs to happen now is something in China or India to take the growth out of there economies and we are in for one almighty drop. I am tipping once the Olympics are over, China will drop off. Like every boom there is a bust, everytime there is a boom, there is a reason why it won't end.

[paulr]

yes we are gooing to celebrate independece day, yet we are dependant on the world. china ownes the USA. Ohhh say can you see$$$$$$

[Barnacle Bob]

Yeah Karl, start buying.... Hahahahaha. I'll give a roar out there to Yogi, the Berenstains and Ursa Major. We'll short your plays.

[martscan]

Whenever I am reading an opinion or comment and I'm admonished by the writer to "look it up", I know immediately the comments are probably rubbish.