"At this point, I think that we're probably a little tired," said Roy M. Blumberg, portfolio manager at First Allied Securities Inc.
The Dow Jones Industrial Average declined 80.85 points, or 0.9 percent, to 8,452.29. The key gauge is up 984.54 points, or 13.2 percent, since its Oct. 8 session low.
On the week, the Dow added 35.53 points, or 0.4 percent.
On the year, the Dow is up 544.04 points, or 6.9 percent, following gains of 33 percent, 26 percent, and 22 percent, in 1995, 1996, and 1997, respectively.
Next week's economic calendar is highlighted by Thursday's release of the third-quarter employment cost index, a measure of labor costs closely eyed by the Federal Reserve. But with U.S. economic growth slowing, and the Fed cutting short-term interest rates to ensure the U.S. economy doesn't seep into recession, the ECI will command less attention than usual. Reports on existing home sales, consumer confidence, durable goods, and fourth-quarter gross domestic product growth round out the week's calendar.
Most market participants took Friday's selling in stride in light of the thick gains of the past two weeks.
"We've gone awfully far, awfully fast," Blumberg said. "The Dow's breaking through of 8,250 was an important technical breakout, since it changed the pattern from a basing one to one that's an uptrend."
Blumberg had correctly called for a market that would rise in zig-zag fashion from the September 1 lows.
"We were looking for a stair-step advance, and that's happened," he said. "It looks like it needs a rest and the rest will probably consist of one or two patterns. The worst-case scenario would be a pullback to Dow 8,000. More likely, you'll spend a couple of weeks in a trading range, going back and forth, digesting what you've done."
Some weren't as optimistic.
"What is not yet in the thinking of the market is the sharp drop of the U.S. dollar," said Tracy Herrick, chief investment strategist at Jefferies & Co. Inc., in a research note. "The implications of this are a see-saw market over the next two or three months and a new dip in prices if the dollar falls sharply."
"The all-clear signal for a sustained new bull market would require a stable dollar and the near-failure of a major U.S. bank."
The flood of third-quarter earnings reports ebbed Friday, giving investors a chance to catch their breath after the downpour of earlier in the week. Thus far, about 68 percent of the largest U.S. companies have announced results.
"Earnings have come in about 4 percent lower than last year's third quarter," said Chuck Hill, director of research at earnings compiler First Call Inc. "We believe we'll end up the reporting period about 1 percent lower."
Hill said the results will likely be the wrst since the third quarter of 1991. Going forward, he's worried about three things.
"First, we're seeing the Asian problem spread geographically to Latin America," he said. "Secondly, the capital equipment folks ran into problems in the third quarter. These companies supply goods to industries that have already been hit by Asia."
"The third concern is the import problem, which didn't arise until the third quarter, when it showed up in the steel industry. So, I think down the road we'll see some companies whining about import impact."
Volume waned Friday as some Wall Street players snuck away from trading desks to catch a glimpse of the World Series-winning New York Yankees' parade through Manhattan.
The Standard & Poor's 500 Index fell 0.7 percent.
New York Stock Exchange losers bettered winners by 17 to 13.
On the Big Board floor, turnover receded 15 percent to 638 million shares.
The Nasdaq Composite declined 0.5 percent. Advancing issues led decliners by 22 to 17 in the Nasdaq Stock Market. Volume totaled 819 million shares.
The Russell 2000 Index of small-capitalization stocks gained 0.2 percent.
In the bond market, the 30-year Treasury fell 19/32, to yield 5.172 percent. See Bond Report.
Written by Kevin N. Marder