NEW YORK — The Dow Jones industrial average came as close as possible to a bear market in the second quarter without actually falling into one.
Pounded in the last six weeks by the noxious mixture of rising oil prices, falling home values and continued losses in the banking sector, the Dow and the broader Standard & Poor's 500 index concluded the quarter with tepid gains Monday.
But the Dow finished down 7.4% from March 31 -- and down 19.9% from the blue-chip gauge's record high set in October.
Though the Dow and other major averages so far have averted the 20% drop that historically has defined a bear market, many on Wall Street are convinced that a bear is underway and that it may be a particularly bruising one given the tangle of problems afflicting the economy.
"The average bear market takes us down 30%," said Peter Boockvar, equity strategist at New York brokerage house Miller Tabak & Co. "If that's just the average, we have a way to go. And if you believe this is the worst economic environment in decades, you can even make the argument that maybe we're only halfway there."
The April-to-June quarter started on an up note for the stock market after the 11th-hour fire sale of Bear Stearns Cos. in mid-March raised hope that the global financial system had withstood its biggest threat in decades.
But after climbing for the first half of the quarter, stocks gave way in mid-May to a more prosaic concern -- that a weakening economy could cause long-resilient consumers to wilt under the pressure of soaring gas and food prices.
The fear now is that the economy is caught in a circular loop in which falling real estate prices cause more losses for banks, which continue to rein in lending, which keeps the economy from righting itself.
Financial stocks were pummeled during the second quarter as massive write-offs spread from major banks to regional ones that finance scores of local economies.
The travails of Wall Street were most visible in the shares of Lehman Bros. Holdings Inc., which has battled speculation that it may have to find a buyer because of fallout from the sub-prime mortgage crisis. Its shares skidded 11% on Monday.
The result on Wall Street is a grim acknowledgment that an assortment of ailments -- including the home-loan meltdown and the credit crunch -- are far more intractable than even pessimists had once thought.
"Coming into the quarter there was great hope that the financial crisis would be behind us, that the economy had enough flexibility to provide overall growth and that the consumer would hang in there," said Joe Battipaglia, market strategist for the private-client group at Stifel Nicolaus & Co.
"Unfortunately, we found out we're still in the midst of the credit crisis, the economy is not as flexible as once thought and the consumer is rolling over in a material way," he said.
The Dow edged up 3.50 points Monday to 11,350.01, putting it 19 points away from being off 20%. For the month, the average slumped 10.2%, its worst showing in any June since a 17.7% plunge in 1930 during the Great Depression. The Dow's only other double-digit June drop was an 11% slide in 1896.
The S&P slumped 8.6% in June and 3.2% for the quarter, and is 18.2% below its October peak.
The Nasdaq composite index notched a 0.6% gain in the quarter, and is 19.8% below its October peak.
The biggest factor during the market's slide has been the implacable jump in crude oil, which zoomed 38% in the second quarter. Oil sank 21 cents to $140 a barrel on Monday.
There's been a heated debate about whether speculators have been driving up prices -- as well as whether oil and other commodity markets are gripped by a bubble that will eventually burst.
"Oil's been the knife in the back of the market and getting twisted on a daily basis," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
Stocks undoubtedly were beaten down in recent days by end-of-quarter window dressing on Wall Street -- the quarterly ritual in which money managers prune losing stocks from their portfolios to avoid reporting ownership of them in quarterly mailings to shareholders.
Although some experts say the market could bounce higher in the short term in response to the spate of selling, many expect it to continue heading down. The drop "could easily be 5% or 10% more," Battipaglia said.
Among Monday's market highlights:
The S&P 500 rose 1.62 points, or 0.1%, to 1,280, and the Nasdaq fell 22.65 points, or 1.2%, to 2,292.98. The Russell 2,000 index of smaller companies fell 8.48 points, or 1.2%, to 689.66.
The BKX bank-stock index slumped 1.9% as investors cleaned financial shares out of their portfolios. Citigroup slid 49 cents to $16.76, and Comerica sank $1.27 to $25.63. Wachovia skidded 69 cents to $15.53 after an analyst said it might chop its dividend and the company said it would stop making "pay option" adjustable-rate mortgages.
Corn futures posted their maximum allowable one-day decline, and wheat dropped the most in 13 weeks, after the government said U.S. farmers planted more of both crops than previously expected in an effort to cash in on record prices.