Update on 19/10/07 on DJ

Dow -366.94 at 13522.02, Nasdaq -74.15 at 2725.16, S&P -39.45 at 1500.63

[BRIEFING.COM] Friday marked the 20th anniversary of the 1987 stock market crash, otherwise known as Black Monday. On that October day, the Dow Jones Industrial Average plummeted 22.6%. Against such a benchmark, today's 2.6% decline in the Dow doesn't look all that bad.

That was then, of course, and this is now. Before discussing the action on October 19, 2007, however, let's get one thing out of the way. It is nonsense to think participants were selling because of the psychological impact of the anniversary. Friday's bearish disposition was merely a coincidence and nothing more.

What Friday's action did signal, though, was some genuine concern about the U.S. economy that emanated from cautious commentary/lackluster results out of leading companies such as Caterpillar (CAT73.57, -4.09), Harley-Davidson (HOG 48.30, -0.65), Wachovia (WB 46.40, -1.74), 3M (MMM 86.62, -6.11) and Schlumberger (SLB 99.32, -12.30).

With the exception of Wachovia, each of the aforementioned companies topped third quarter earnings estimates. The stumbling point for investors were comments regarding weakness, or expected weakness, in the U.S./North American markets.

In terms of Wachovia, it missed the consensus EPS estimate of $1.04 by 14 cents, and like others in its industry reporting this week, it made note of an increased provision for credit losses and a deterioration in credit quality.

The latter played into concerns that the third quarter might not have marked the worst for the financial sector. That sense of uncertainty factored into Briefing.com's decision to reiterate its Underweight rating on the financial sector on October 8.

Separately, the rash of lousy earnings reports from the banking sector, combined with signs this week that the housing market continues to deteriorate, raised the market's fear factor about ongoing credit market risk. A telltale sign of the concern was the rally in the Treasury market.

The 10-year note jumped 28 ticks, lowering its yield to 4.38%. The 2-year note, meanwhile, saw its yield drop 14 basis points to 3.76%. When the week began the yields on these government-backed issues were 4.68% and 4.23%, respectively.

The indiscriminate selling in the stock market was another indication of investors' angst. Some groups, like energy (-4.3%), financial (-2.9%) and industrials (-2.9%), were hit harder than others, but the recognition that all sectors were down at least 1.0% showed there was little appetite for owning stocks in this uncertain period.

In light of the weak showing from the stock market, the dollar stayed on the defensive as the dollar index shed 0.24% against a basket of other major currencies.

Taking a step back, the action in the major indices on Friday was pretty much the equal and opposite reaction to the gains that were registered on September 18th when the FOMC cut the fed funds rate by 50 basis points to 4.75%. Recall that the Dow, Nasdaq and S&P surged 336, 70, and 43 points that day. How fitting then that the fed funds futures are now pricing in a near 100% probability of a rate cut at the October 30-31 meeting after pricing in only a 50% probability just a few days ago.

It wasn't a good day at all on Wall Street. Down volume swamped up volume at the NYSE by a 19-to-1 margin; and the ratio was 10-to-1 at the Nasdaq. An options expiration today added to the trading totals.

After Friday's retreat, the broader market is still up up 5.80% for the year.