THE sharemarket has notched up another bleak record, plunging to its lowest point in nearly two years as fears of a global slowdown hit the market's trump card, the resources sector.
Three days after recording the worst financial year in 26 years, the sharemarket lost almost 2 per cent yesterday, with the ASX200 index lurching through 5000 points for the first time since September 2006.
The ASX200 closed at 4998.3, down from 5094.8 on Wednesday, as crude oil hit a fresh record above $US145 a barrel, heightening fears that fuel costs will stifle growth.
Overnight, Wall Street's Dow Jones index fell 1.5 per cent and entered official bear market territory - 20 per cent below its peak - and London's FTSE 100 closed at a three-month low.
Normally a bastion of strength amid the economic doom and gloom, local resources stocks fell by 6.12 per cent and energy stocks lost 4.15 per cent.
BHP Billiton and Rio Tinto each fell more than 7 per cent, taking their lead from a 13 per cent fall in a US steel index and steep falls in coal prices.
A senior dealer at CMC markets, Dominic Vaughan, said declining commodity prices had sparked fears the commodity boom may be slowing, and high oil prices inflamed pessimism.
"If we continue to see higher oil prices, then we'll probably see softer equity markets. The cost of doing business between companies is rising, and many are finding it hard not to pass on the higher oil costs," he said.
Adding to the sense of gloom, a report by Merrill Lynch warned that the US auto giant General Motors could go bankrupt if it did not raise up to $US15 billion ($15.6 billion), dragging GM's share price to its lowest point since 1954.
A survey of US employment pointed to fall of 80,000 jobs last month, far more severe than expected, strengthening the argument that the world's largest economy is in recession.
The stream of negative news from the US, coupled with the soaring oil price, added to fears that the worst is yet to come.
An equities economist at CommSec, Savanth Sebastian, said the market could improve slightly this year but a circuit-breaker to the cycle of negativity during the upcoming profit reporting season was unlikely.
"What we've been seeing is that negative news is having much more impact on the market than anything positive."
Don Williams, chief investment officer of Platypus Asset Management, cautioned that during historical lows markets had had price-earnings multiples of as low as five to seven, well below current levels.
"That means the market could halve, just on that metric alone, and that's assuming earnings don't change," he said.
Price-earnings mulitples are contracting because of higher interest rates and costs.
Analysts said the oil price, which has more than doubled in the past year, and the extent of the slowdown in domestic spending would broadly drive the market in coming months.
Mark Nathan, a portfolio manager at ABN Amro Asset Management, said high oil prices benefited about 10 per cent of companies in the market, but generally acted as a tax on growth.
"The only people doing well out of the oil price are the oil companies and the gas companies - there's not a lot of joy to be had by anyone else," he said.
Despite the pessimism, many observers believe there will be good value in stocks if economic conditions change.
Many financial, infrastructure and property stocks, which have been heavily sold since the onset of the credit crunch, were supported by strong underlying businesses, Mr Nathan said.
In currency markets, record crude prices outweighed the lagging price of other commodities, lifting the Australian dollar to US96.26c.
