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[BRIEFING.COM] The major averages chalked up their worst three-day loss in over a year as growing uncertainty about a potential cease-fire between Israel and Lebanon lifted oil to record levels and kept buyers on the sidelines heading into the weekend.

Even though crude oil for August delivery closed well off its intraday, all-time high of $78.40, a $77 price tag for a barrel of black gold, especially with the summer driving season in full swing, tarnished all hopes at a potential rebound following two consecutive days of sharp losses. In fact, the belief that escalating unrest in the Middle East may get much worse before it gets better pushed the October oil contract above $80 per barrel.

While oil making new highs everyday continues to position oil stocks for another strong quarter of earnings growth, the only other sectors joining Energy (+1.2%) to the upside Friday were Materials, Telecom and Utilities -- the three least influential of the 10 SnP 500 sectors -- which barely finished above the flat line. The absence of leadership from Industrials weighed most heavily on the market as rising energy prices prompted more consolidation throughout the transportation group. The inability by the Health Care and Consumer Staples sectors to benefit whatsoever from their defensive characteristics further underscored the market's widespread nervousness.

Also preventing bargain hunters from getting back into a market that is showing signs of oversold conditions was the reality that more warnings hit the wires than good earnings reports, raising worries that Wall Street estimates, which just a few weeks ago called for 12% growth over the second half of the year, will have to keep coming down.

Home builder DR Horton (DHI 21.21 -1.65) slashed its Q3 and full-year EPS guidance due to deteriorating market conditions and Borders Group (BGP 17.55 -0.73) warned that it will miss analysts' expectations due to waning sales. While it initially appeared as though bellwether General Electric (GE 32.10 -0.57) may stem some of the broad-based selling pressure after it reported a mild Q2 profit improvement, further analysis of a Q3 outlook that checked in at the low end of analysts' forecasts added to concerns about earnings prospects in the face of a slowing economy.

June retail sales unexpectedly fell 0.1% (consensus +0.4%) and exacerbated fears of a significant consumer slowdown.

Also weighing on sentiment was the Bank of Japan raising its overnight rate for the first time in six years to 0.25%. Even though the move was widely expected, it puts the BOJ on board with other central banks around the world that have been working to keep inflation under control with higher rates that, in turn, will slow economic growth.
NYSE Adv/Dec 1042/2200...Nasdaq Adv/Dec 949/2034