U.S. stocks, beleaguered by disappointing earnings, near record-oil prices, continuing credit problems and underlying fears that the worst is ahead for the economy, fell fast and hard Friday.
Major indexes all finished the trading day more than 2.5 percent lower, with the Dow losing more than 365 points after holding steady for much of the day following an early sell-off.
Investors were spooked by a number of factors.
Several Dow components, including Caterpillar, Honeywell and 3M, all lost significant ground during the day as analysts attributed the drops to poor earnings reports for the third quarter as well as lowered expectations for the fourth quarter.
The market's decline coincided with the 20th anniversary of "Black Monday," when the Dow Jones Industrial Average fell 23 percent on Oct. 19, 1987. Historically, though, the anniversary has not been a down day for the market, with only five previous Oct. 19 declines since the crash.
Wachovia , the fourth-largest U.S. bank, missed estimates as it posted a 10 percent drop in quarterly profit, hurt by $1.3 billion of write-downs at its investment banking unit as credit markets tightened.
"The real issue, we think, is credit," said Robert Doll, CIO for global equities at BlackRock. "We went through a period from mid-August to a week or so ago where it looked like the Fed had the answer to all our problems, and we don't think it's quite that simple.
"We think credit issues will be there and bother us from time to time for months to come, and I think that's what's weighing on the market."
Caterpillar , meanwhile, said several U.S. industries it serves were in recession and machinery sales to nonresidential builders were declining as fast as sales to residential builders, which it said were in "severe recession." The company's CFO also said he sees a 50 percent chance the U.S. will fall into recession in 2008.
The company missed estimates even though earnings rose 21 percent.
Meanwhile, the tech-fueled Nasdaq also pointed downwards, despite stronger-than-expected earnings from Google. Shares of Google were among a select few stocks trading modestly higher after the Web search leader reported a 46 percent rise in profit that exceeded market expectations thanks to tighter cost controls and an increase in market share.
The dollar also weighed on stocks as it fell to an all-time low against the euro, fueling concerns that the recent credit squeeze would continue to drag on financial services companies.
Oil popped briefly above $90 a barrel before retreating below $89 in what was likely isolated profit-taking.
Energy stocks fell along with the price of oil. Exxon Mobil shares dropped nearly 1 percent as U.S. crude shed nearly 1 percent after rising to a record $90.07 a barrel overnight.
"It's pretty ugly," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading in Boston. "A company like Caterpillar should be a poster child for global growth and benefits of the weak dollar. It makes you question, is global growth really that strong, has the earnings kick from the weak dollar played itself out?"
Adjusted for inflation, oil is still below the $101.70 peak hit in April 1980, a year after the Iranian revolution, according to the International Energy Agency.
Schlumberger, the world's largest oil service company, fell as the company reported higher third-quarter profit, but a drop in revenue and pricing pressure in North America disappointed investors.
Honeywell , the biggest gainer this year of Dow components before Friday's losses, also reported earnings that fell slightly below estimates, but the New Jersey-based manufacturer boosted its full-year outlook. By mid-afternoon the company rebounded from an earlier low but still felt the burden of missed expectations.
McDonald's, also a Dow component, outpaced analyst estimates with its profit rising 27 percent on a 7.2 percent sales gain.
Overall, decliners outweighed advancers by a 4 to 1 margin on heavier-than-normal trading.
With stocks down, U.S. government bond prices rallied as investors continued to bet that credit market strains and a decelerating economy would prompt the Federal Reserve to cut interest rates soon.
Treasuries rallied for the fifth day on Friday, briefly pushing the two-year yield to its lowest level in two years, as Caterpillar warned that the fallout from the housing market is spreading into other areas of the economy.
The worries about the economy and the market fallout from those worried fortified the view that the Federal Reserve would cut interest rates again at its next policy meeting.
"There seems to be a growing sentiment that the Fed (will) move at the next FOMC meeting," said David Coard, head of fixed-income sales and trading at The Williams Capital Group.
- Reuters contributed to this report.