Bleak Friday on Wall Street

NEW YORK (CBS/AP)

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It wasn't a "Black Monday," but it was certainly a Gray Friday.

The Dow Jones industrial average dropped more than 360 points Friday - the anniversary of the Black Monday crash 20 year ago - as renewed credit concerns, lackluster corporate earnings, and rising oil prices spooked investors.

Stocks tumbled after three corporate heavyweights - 3M Co., Honeywell Inc., and Caterpillar Inc. - reported disappointing earnings. At the same time, oil jumped to $90 dollars a barrel for the first time ever before settling down at a little over $88.

"I've never seen a rally, a spike in oil prices, that is based solely on the possibility of something going wrong rather than something fundamental," energy trader Eric Bolling told CBS News correspondent Kelly Wallace.

The market turned sharply lower in late afternoon 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.

In one bright spot, Google Inc. reported stronger-than-expected profits, drawing a number of analyst upgrades.

"We've got a multitude of earnings that are less than optimal in spaces outside the financials," said Art Hogan, chief market strategist at Jefferies & Co. "Investors are starting to get concerned about both the pace of the U.S. economy and the pace of earnings growth."

In the final hour of trading, the Dow Jones industrial average fell 354.26, or 2.55 percent, to 13,534.70. The Dow is down for the fifth straight session.

For the week, the Dow dropped more than 580 points since opening bell on Monday.

"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.

Broader stock indicators also fell. 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. The Nasdaq fell below the noteworthy technical level of 2,750, adding to selling pressure.

Friday's pullback pales in comparison to what traders on the floor of the New York Stock Exchange 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.

The volatility comes on a dramatic anniversary... 20 years to the day since the crash of 1987. Could it happen again?

"We could always have another crash," stock market analyst Elaine Garzarelli told Wallace. "Human emotions are the determining factor, and there's a lot of exuberance and greed out there."

There are similarities to '87... surging oil prices, a weak dollar, and volatility in the markets. But there are big differences too, analysts say.

To equal the 500 point, 23% percent drop in the Dow back on Black Monday, today the Dow would have to plummet by 3,200 points.

"The world economy is in much better shape than it was then," Bolling said. "Twenty years ago, we sneezed and the rest of the world caught a cold. It's not like that anymore; it's a world, global economy."

Still, Wall Street's nervous. The bursting of the housing bubble and a credit crunch have some whispering the R-word: Recession.

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 4.39 percent from 4.50 percent late Thursday. The dollar was mixed against other major currencies, while gold prices fell.

After touching $90.02 overnight, light, sweet crude fell 86 cents to $88.61 on the New York Mercantile Exchange. Part of oil's run-up this week owes to continued worries over tensions between Turkey and Kurdish rebels in northern Iraq. Investors are concerned a conflict could disrupt supplies through Turkey, an important oil hub.

The rise in crude prices has also attracted investors looking for a hedge against the weakening U.S. dollar. The greenback fell to a new low against the euro Thursday.

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 change in concern," Hogan said, referring to results from industrial companies like Honeywell and Caterpillar. "That gives us a great deal of pause."

3M, the maker of Scotch tape and Post-It Notes, said quarterly profit jumped 7 percent on strong growth across all regions, but sales missed expectations. The company raised its profit outlook for the full year. But the company announced plans to cut prices on its profitable films for LCD television screens. The stock fell $7.93, or 8.4 percent, to $86.80.

Honeywell International Inc., 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 $2.24, or 3.7 percent, to $58.45.

Caterpillar, one of the world's largest construction equipment makers, fell $4.41, or 5.7 percent, to $73.25 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.

Wachovia Corp. fell $1.55, or 3.2 percent, to $46.58 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 and said there would be staff cuts.

Google rose $4.56 to $644.18 after the search engine leader said advertising spending lifted third-quarter profit by 46 percent.

Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 1.56 billion shares.

The Russell 2000 index of smaller companies fell 23.71, or 2.87 percent, to 801.32.

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.

Posted by LS

CBS and Associated Press contributed to this report.