Another torrid day of trading on Wall Street plunged America into an official bear market last night for the first time as oil prices hit a fresh high.
A technical bear market occurs when shares are seen to have fallen by a fifth from their previous highs. Oil moved above $144 in New York, while the Dow Jones Industrial Average lost 166.75 points or 1.5 per cent, to close at 11,215.51, taking its decline since October to 21.3 per cent.
The drop came as giant carmaker General Motors (GM) faces the possibility of going bust and will need as much as $15bn (£7.5bn) to shore up its balance sheet, investment bank Merrill Lynch warned yesterday.
Merrill analyst John Murphy cut his rating on GM to “underperform” from “buy” and added: “Bankruptcy is not impossible if the market continues to deteriorate.”
Murphy forecast GM car sales of 14.3 million units this year and 14 million units for 2009. That compares with 16.15 million units the carmaker sold in 2007.
This is the third time this year Murphy has cut his GM forecasts.
He said: “The recent extreme deterioration in volume and mix is driving much higher cash burn and eroding GM’s cash position”. Murphy added: “We believe $15bn is necessary because there is downside risk to our current estimates and a greater cushion is essential.”