The Dow Jones industrial average dropped more than 360 points Friday — the anniversary of the Black Monday crash 20 years ago — as lackluster corporate earnings, renewed credit concerns and rising oil prices spooked investors.
The major stock market indexes turned in their worst week since July after Caterpillar Inc., one of the world's largest construction equipment makers, soured investors mood Friday with a discouraging assessment of the U.S. economy. In a week dominated by mostly negative results from banks facing difficult credit markets and rising mortgage delinquencies, investors appeared surprised that an industrial name was feeling an economic pinch, too.
Reports from Honeywell International Inc. and 3M Co., themselves big industrial names, gave investors little incentive to take chances on the market. In one bright spot, Google Inc. reported stronger-than-expected profits, drawing a number of analyst upgrades.
Investor sentiment took another hit when Standard & Poor's again reduced its ratings on residential mortgage-backed securities. The latest reduction, on more than 1,400 types of securities, added to investors unease about credit quality.
And oil prices added to investors' list of worries after briefly moving above the psychological barrier of $90 per barrel for the first time.
"I was not surprised there was some correction, given our expectation that earnings growth was going to fall short of expectations," said Alan Gayle, senior investment strategist, director of asset allocation for Trusco Capital Management.
"I think stock analysts were slow to incorporate the impact of the subprime crisis on third-quarter earnings," he added.
The Dow fell 366.94, or 2.64 percent, to 13,522.02. The Dow was down for the fifth straight session and for the week was off 4.05 percent. For the year, the blue chip index is now up 8.5 percent.
Broader stock indicators also fell sharply Friday. The Standard & Poor's 500 index fell 39.45, or 2.56 percent, to 1,500.63, and the Nasdaq composite index dropped 74.15, or 2.65 percent, to 2,725.16.
For the week, the S&P 500 fell 3.92 percent and the Nasdaq fell 2.87 percent.
Friday's pullback pales in comparison to what investors had to contend with 20 years ago. On Oct. 19, 1987 — Black Monday — the Dow plunged 23 percent amid concerns about interest rates and slowing economic growth. A decline of similar proportion given the market's current levels would mean a drop of some 3,000 points.
Friday's decline was the 9th biggest point drop in the Dow since Black Monday.
A decline Friday in the NYSE composite index proved steep enough to trigger trading curbs, which puts restrictions on certain types of sell orders. These type of protections were put in place as part of the response to Black Monday.
Bonds prices rose again Friday, extending a rally to an unusual five sessions. The yield on the benchmark 10-year Treasury note, which moves inversely to the price, fell to 4.40 percent from 4.50 percent late Thursday. The dollar was mixed against other major currencies, while gold prices fell.
After touching $90.07 overnight, light, sweet crude fell 87 cents to settle at $88.60 on the New York Mercantile Exchange. Prices have spiked due amid forces such as a weak dollar and thin supplies at a key Midwest oil terminal.
Illustrating investors' unease, the Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," spiked Friday, jumping 24 percent.
"Investors are starting to get concerned about both the pace of the U.S. economy and the pace of earnings growth," said Art Hogan, chief market strategist at Jefferies & Co.
Hogan noted that for much of the week investors focused on results from banks, which saw profits drop on souring mortgage loans and tight credit markets. But seeing weakness Friday in industrial company earnings reports increased their nervousness.
"We've got a multitude of earnings that are less than optimal in spaces outside the financials," he said.
Caterpillar fell $4.09, or 5.3 percent, to $73.57 after its third-quarter earnings rose 21 percent but fell short of Wall Street's expectations. In addition, the company lowered its full-year forecast.
Honeywell, the diversified manufacturer, turned in a 14 percent increase in its third-quarter earnings. The company raised its forecast for full-year earnings to the high end of its previously targeted range. An analyst, however, described profit margins at the company's transportation and automation and controls segments as disappointing. The stock declined $2.37, or 3.9 percent, to $58.32.
3M, the maker of Scotch tape and Post-It Notes, said its quarterly profit jumped 7 percent amid strong growth across all regions, but sales missed expectations. The company raised its profit outlook for the full year. The company also announced plans to cut prices on its profitable films for LCD television screens. The stock fell $8.11, or 8.6 percent, to $86.62.
Wachovia Corp. fell $1.74, or 3.6 percent, to $46.40 after reporting third-quarter profits fell 10 percent due to write-downs related to difficult credit market conditions. The nation's fourth largest bank signaled increasing credit troubles ahead.
Google rose $5.09 to $644.71 after the search engine leader said advertising spending lifted third-quarter profit by 46 percent.
Declining issues outnumbered advancers by more than 5 to 1 on the New York Stock Exchange, where volume came to 1.79 billion shares compared with 1.27 billion shares traded Thursday.
The Russell 2000 index of smaller companies fell 26.24, or 3.18 percent, to 798.79.
Overseas, Japan's Nikkei stock average closed down 1.71 percent. Britain's FTSE 100 fell 1.23 percent, Germany's DAX index fell 0.47 percent, and France's CAC-40 fell 0.46 percent.