Thud

Dow Jones Industrial index closes down nearly 400 points.

I love the fact that the DJI index has done so well over the last year, despite all the economic chaos, but I sure don't understand why it's still so high. It's like watching a pig-sized hummingbird zip up and over the oak trees.

Here's more:

Stocks plunged Friday, sending the Dow Jones industrials down nearly 400 points, after oil prices shot up by more than $11 a barrel and neared $140 a barrel — and wiped out investors' recent optimism about the economy in the process.

...Crude oil has seen a huge rebound this week after falling amid a drop in demand for gasoline. The jump continued Friday; light, sweet crude set a high of $139.12 in after-hours trading on the New York Mercantile Exchange after settling at $138.54, a gain of $10.75 in the regular session. The surge followed a Morgan Stanley analyst's prediction that crude would reach $150 a barrel by July 4; a decline in the dollar and fresh tensions in the Middle East added to crude's advance.

Oil investors' frantic buying of crude futures made it clear that the market could make the Morgan Stanley prediction a reality. And on Wall Street, crude's soaring price intensified worries that ever-expensive fuel will lead consumers to curtail their spending on nonessentials. With gasoline at the threshold of a national average of $4 a gallon, crude's surge higher is expected to propel gas even higher — and make Americans even more reluctant to spend.

Moreover, the spike in energy prices came as the Labor Department said the nation's unemployment rate jumped to 5.5 percent in May from 5.0 percent in April. It was the biggest monthly increase since February 1986 and the rise leaves unemployment at it highest level since October 2004. Wall Street had predicted an uptick to 5.1 percent.

The number of U.S. jobs shrank by a smaller-than-expected 49,000, but that development offered Wall Street little solace given that May marked the fifth straight month of jobs losses.

Still, the sudden rise in oil prices appeared to weigh most heavily on Wall Street. The jump in oil also came after an Israeli Cabinet minister hoping to replace Prime Minister Ehud Olmert was quoted as saying Israel would attack Iran if it doesn't abandon its nuclear program.

"I think the biggest concern right now is oil and it's potential for a stagflationary environment," said Bill Knapp, investment strategist for MainStay Investments, a division of New York Life Investment Management. Stagflation occurs when stalling growth accompanies rising prices.

According to preliminary calculations, the Dow Jones industrial average fell 394.64, or 3.13 percent, to 12,209.81. It was the worst percentage and point drop since Feb. 27, 2007, when the blue chips dropped 416.02 points, or 3.29 percent, as concerns emerged about troubles in the credit market and an economic slowdown.

Broader stock indicators also fell sharply. The Standard & Poor's 500 index lost 43.37, or 3.09 percent, to 1,360.68, and the Nasdaq composite index fell 75.38, or 2.96 percent, to 2,474.56.

Friday's pullback came a day after the Dow jumped nearly 214 points, its largest daily point gain since April 18 and a reacation to better-than-expected sales from retailers and a dip in weekly jobless claims. The welcome economic news helped investors shrug off a more than $5-a-barrel spike in oil prices. But the advance in oil Friday made it clear to Wall Street that oil posed a serious threat to consumer spending and the economy.