Last month, we wondered whether the solid recovery from the March lows was the calm after the storm, or the eye of the hurricane.  June answered that question with the worst one month return (down 8.6%) since February 2002 and the worst return for the month of June since 1930.  For the quarter, the S&P 500 declined 2.7%, which is not so bad except that it's the third negative quarter in a row (the S&P 500 declined 3.3% in Q4 2007, and declined 9.4% in Q1 2008.)  
 
As multi-quarter declines go, we've seen worse over the last 100 years (stocks declined 6 straight quarters Q1 1969 through Q2 1970.)  Stocks declined three quarters in a row in 2000 and 2002 during the particularly vicious bear market which started this century.  However, combine the stock market decline with a doubling of oil prices and a 15% decline in housing prices over the last year, and you have pretty much the perfect storm of economic misery.
 
Overall, the stock market returned to the low levels set March 10th-17th as Bear Stearns was forced out of business, edging official bear market territory with a decline of 20% from last October's record high.  Overall, three factors are keeping a lid on stock prices:
 
o    Speculation that banks will announce larger than expected credit losses for Q2 2008
o    Inability of the dollar to rally from the all-time lows set earlier this year
o    Continued volatility and record prices in the energy sector
 
Each factor ties into the other.  The Federal Reserve will likely keep rates at the current low 2% through year end to help the banks recapitalize (banks borrow overnight at 2% or slightly higher, lend long at 5% or more, profiting from the net interest margin.  If short rates rise, that margin and therefore profit is squeezed.)  US rates are low relative to European rates, which may well rise later this year, so currency traders sell dollars to buy Euros.  But pressure on the dollar pushes the price of oil higher.