MarketView for July 2

The Dow Jones industrial average ended the day on Wednesday in bear market territory as stock prices fell on growing concerns over the toll that record oil prices are taking on both the economy and corporate profits. After flirting with bear market status for several sessions, the Dow closed 20 percent below its October peak as it was no longer able to withstand the avalanche of warnings about banking losses, surging inflation fears and weakening consumer confidence.

Merrill Lynch struck a negative chord early in the session when it downgraded General Motors, saying the automaker will need $15 billion to shore up liquidity. Merrill added that bankruptcy is "not impossible" for GM if the auto market continues to slump, sending GM's shares down more than 15 percent. General Motors ended the day down $1.77, or 15.06 percent, to close at $9.98

Adding to the gloom, Treasury Secretary Henry Paulson said high oil prices, further home price declines and capital markets turmoil will prolong the American economy's slowdown. Compounding the nervousness a day before the key monthly jobs report was a report released on Wednesday by ADP indicating that 79,000 jobs were lost in June.

As a result, shares of big-cap technology companies, such as Intel and Caterpillar sold off. Caterpillar was the biggest drag on the Dow, as its shares fell $3.67, or 4.95 percent, to close at $70.42., while Intel ended the day down $0.64, or 2.97 percent, to close at $20.93.

Coal mining company shares, including Consol Energy, were hammered throughout the session as the price of coal fell. The Dow Jones coal index fell 13.9 percent, led by a drop of 14.63 percent in the shares of Consol Energy, which ended the day down $16.38 to close at $95.97.

Lehman Brothers saw its share price increase $1.40, or 6.68 percent, to close at $22.36 after CNBC reported that the investment bank is issuing stock to employees as a retention effort.

The ADP's employment report aside, Wednesday's data brought some brighter news as well, with a boost in demand for aircraft lifting new orders at U.S. factories by an unexpectedly large 0.6 percent in May.

Crude Sets New Record

Oil prices reached a record high of more than $144 per barrel on Wednesday after crude inventories came in at a lower number than had been anticipated setting off supply concerns. Domestic sweet crude for August delivery hit a record $144.15 per barrel in post settlement trading after settling up $2.60 at $143.57 per barrel. London Brent settled up $3.59 per barrel at $144.26, after hitting an all-time high of $144.76.

Meanwhile, the Energy Information Administration reported that crude oil stocks fell by 2 million barrels to 299.8 million barrels last week, putting commercial inventories below 300 million barrels for the first time since last January. At the same time, gasoline stocks rose, as high pump prices continued to cut summer gasoline demand. A smaller-than-expected rise in distillate stocks, a category that includes heating oil and diesel, sent heating oil futures to a record high.

Oil prices are up seven-fold since 2002 as demand from emerging economies like China and India stretch supply growth. Fears of an escalation in the showdown between Iran and the West over Tehran's nuclear program have helped push oil prices to fresh peaks amid speculation that Israel is preparing a pre-emptive strike against Iran.

The United States has said it would defend shipping in the Gulf in the event Iran made good on threats to block the Strait of Hormuz, through which 40 percent of the world's seaborne oil passes, if the OPEC nation were attacked.

The weak dollar also continued to support oil prices, as the dollar fell against the euro on signs of weakness in labor markets and as traders anticipated that the European Central Bank would raise interest rates on Thursday. Investors have been using oil and other commodities as a hedge against the weaker dollar and inflation, helping to fuel a rise in oil prices of more than 40 percent since January.

Rise in Factory Orders Slowest in 3 Months

The Commerce Department reported on Wednesday that Factory orders came in at their slowest pace in three months during May as rising demand for commercial aircraft was not enough to offset weakness in autos, heavy machinery and steel. As a result, orders rose by 0.6 percent in May, less than half the gains turned in during April and March, Wednesday. It was the poorest showing since factory orders had fallen by 0.4 percent last February.

In actuality, the figures for the past three months have been inflated by big increases in the cost of refined petroleum and related products such as chemicals, which have been soaring because of the rising cost of global oil prices.

Oil hit a new record on Wednesday, climbing to above $144 per barrel. Global Insight, a major economic forecasting firm, said it was raising its forecast for how high oil will go this year, predicting that West Texas intermediate crude will hit $160 a barrel in December, up from its previous forecast that oil would close out this year at $124 per barrel.

The economy so far has managed to stay in positive territory for growth, thanks in part to $106.7 billion in economic stimulus checks that are now being mailed out. The gross domestic product grew at an annual rate of 1 percent in the first quarter. the just-completed April-June quarter is likely to show an even stronger growth rate of 1.8 percent followed by GDP growth of 1.6 percent in the July-September quarter, when the economy will still be feeling the positive effects of increased spending from the stimulus payments.

However, look for growth to decline in the final three months of this year and decline at even further during the first three months of next year. A standard definition of a recession is two consecutive quarters of negative GDP.

The question now is to what degree the overall economic slowdown will have on manufacturing, which has been hurt by troubles in the auto industry and housing-related industries. That weakness has been offset to some extent by strength in exports, which have continued to rise as American manufacturers have benefited from a weak dollar, which makes their products more competitive overseas.

Meanwhile, the factory orders report showed that demand for durable goods, items expected to last at least three years, were flat in May while demand for nondurable goods, products such as food and petroleum, rose by 1.2 percent.

Transportation orders rose by 2.5 percent, reflecting a big 10.3 percent surge in demand for commercial aircraft. That helped to offset a 1.6 percent drop in demand for motor vehicles. Automakers have been battered by soaring gasoline prices, which have cut into demand for once-popular trucks and sport utility vehicles. Ford, General Motors and Chrysler all reported big declines in June sales.

The factory orders report showed that demand for machinery was down by 5 percent in May, reflecting big decreases in orders for construction machinery, mining equipment and industrial machinery.

Orders for primary metals including steel were off by 2 percent, but orders for computers and electronic products rose by 2.9 percent.

GM Below $10 - First Time in 50 years

Shares of General Motors closed below $10 for the first time in more than half a century, as better-than-expected June sales were unable to overcome concerns over GM’s ongoing requirements for liquidity. GM ended the day down $1.77, or 15.06 percent, to close at $9.98. Their session low of $9.96 marked their lowest point since Sept. 13, 1954, when they hit $9.92, according to the Center for Research in Security Prices at the University of Chicago. The price is adjusted for splits and other changes.

On Tuesday, GM saw its share price rise by as much as 12 percent. The automaker reported an 18.2 percent drop in sales from a year ago but retained its traditional sales lead over Toyota, which posted a 21.4 percent decline. GM's sales were able to outpace those of most other automakers because of late-month incentives and double-digit jumps in demand for certain small and midsize cars.

Citigroup analyst Itay Michaeli reduced his price target on GM shares to $14 from $21, citing liquidity fears.

"While we do not believe GM is facing an immediate cash crunch, the urgency to shore up liquidity to navigate through a difficult 2008-09 has risen significantly in recent months," Michaeli wrote in a note to clients. He kept a "Hold" rating.

Ford did not fare as well. Ford said its June sales fell 27.9 percent, blaming the decline on rising gas prices with the result that its light truck sales were down 35.4 percent. Ford ended the day down $0.35, or 7.4 percent, to close at $4.36, passing a multi decade low of $4.41 set the day before.

June was a dismal month for the industry overall, which posted a 18.3 percent sales drop, according to Autodata Corp. Only Honda, whose lineup is tilted toward smaller and more fuel-efficient cars, managed to report a sales increase for June - slightly over 1 percent.