NEW YORK (CNN/Money) - The Dow Jones industrial average sank to its lowest level in nearly four years Friday in a selloff that only further highlighted the drastic loss of confidence in the stock markets in the United States.

It was the seventh-biggest point drop ever for the world's most widely watched stock average. Mixed earnings results from big-name companies, news of a government investigation at Johnson & Johnson, and worries about a possible bankruptcy filing by WorldCom gave already jittery investors more reasons to head for the exits.

Morgan Stanley's William Sullivan speaks on the markets' fall. 279KB / 0:10 WAV AIFF sound

"It shows you how much confidence has been shattered," Morgan Stanley senior economist William Sullivan told CNNfn's Street Sweep program. The sharp declines in stock prices in recent weeks are likely to erode consumer confidence, which could in turn hurt the economy's prospects in the second half of the year, he said.

The Dow tumbled 390.23 to 8,019.26, bringing the 30-share index down 1,360 points over the past two weeks and leaving it at its lowest since October 1998. It also closed 216 points below its Sept. 21 close following the first full week of trading after the Sept. 11 attacks.

The Nasdaq composite index tumbled 37.80 to 1,319.15, capping a 4.5 percent loss for the week; it's down 35 percent for the year. The Standard & Poor's 500 index sank 33.81 to 847.75 and it's down 27 percent in 2002.

The Dow has now fallen nine of the past 10 sessions and for nine straight weeks. Both the Nasdaq and S&P are at their lowest levels since the first half of 1997.

"There is just no good news out there right now, and people are not willing to get involved in the market going into a weekend," Bryan Piskorowski, market analyst at Prudential Securities, told the Associated Press. "You've got a buyers' strike going on."

If stocks don't snap back in the second half of the year, the U.S. stock market could end 2002 with its first three-year losing streak since 1939-1941.

The Dow fell 390.23 to 8,019.26, to its lowest level since October 1998, the Nasdaq composite index lost 37.80 to 1,319.15. Play video

While investors were selling stocks, they were buying Treasury bonds and gold as they sought safer investments.

Grammy award-winning singer and songwriter Billy Joel also weighed in with his opinion about the markets' recent volatility and the crisis of confidence in corporate America, telling CNNfn Friday that investors "have a good reason to be scared."

"It's not just the market fluctuation. It's also what's going on with these big companies," Joel said. "Everyone's got questions about this."

The 53-year-old crooner -- who late last month checked out of a substance abuse and psychiatric hospital after a 10-day stay -- said he does not have that much exposure to stocks in his own portfolio and said he is generally distrustful of large corporations.

"I know how big business works. I don't trust it," Joel said.

Dow component Johnson & Johnson (JNJ: down $7.88 to $41.85, Research, Estimates) said it is under investigation by the U.S. Food and Drug Administration for allegations of improper record-keeping at a manufacturing plant that makes an anemia drug linked to serious illnesses in Europe and Canada.

Sun Microsystems (SUNW: down $1.55 to $4.25, Research, Estimates) ended a string of four straight money-losing quarters with a modest 1-cent-a-share fiscal fourth-quarter profit. But the prosperity may be short-lived; the maker of workstations and servers said it sees a loss for the current quarter, indicating that spending on information technology has failed to rebound. The stock was the Nasdaq's No. 1 most active, losing more than 26 percent of its value Friday.

Credit Suisse First Boston downgraded Sun Microsystems to "hold" from "buy."

"There's just no reason to buy right now," Mike Murphy, head of equities at Wachovia Securities, told CNNfn. "I think Monday morning's going to be lousy unless something happens over the weekend."

Another factor in the market adding to the volatility, some market watchers said, was the rebalancing of the Standard & Poor's 500, in which seven issues are being removed and another seven are being added.

In addition, Friday was a "double-witching" day, on which both stock index and stock options futures expired.

Microsoft (MSFT: down $1.55 to $49.56, Research, Estimates) fell after lowering its earnings and revenue targets for fiscal 2003, which began this month.

Merrill Lynch trimmed its earnings estimate by 2 cents to $1.90 a share but raised its first-quarter estimate to 42 cents a share from 39 cents. The firm maintained a "buy" rating on the stock.

Shares of AOL Time Warner (AOL: down $0.87 to $11.58, Research, Estimates) fell after Chief Operating Officer Robert Pittman quit the world's largest media company Thursday. Merrill Lynch commented on the development, saying, "Given the dramatic deterioration in underlying operating fundamentals at the AOL division, together with the rampant speculation of divisional management change, we believe the timing and nature of the announcement was appropriate."

The firm maintained a "buy" rating on the stock. AOL Time Warner is the parent company of CNN/Money.

Dow component and drugmaker Merck (MRK: down $0.50 to $41.50, Research, Estimates) managed to stave off the broader market's losses after it reported a slight drop in second-quarter earnings that met Wall Street estimates for the period. Looking forward, the company said it expects to meet or top forecasts for the rest of the year. The company's revenue accounting has come under scrutiny in recent weeks.

In economic news the Commerce Department said the U.S. trade deficit widened to a record $37.6 billion in May from $36.1 billion in April. Economists expected the deficit to fall to $35.3 billion, according to Briefing.com.

The Labor Department said its consumer price index, which measures retail prices paid by consumers, rose 0.1 percent in June after being unchanged in May. That was in line with expectations of economists surveyed by Briefing.com.

Asian-Pacific stocks took a beating Friday, with Tokyo's Nikkei index down 2.8 percent. European markets tumbled at the finish on Wall Street's woes and Swedish telecom gear maker Ericsson (ERICY: Research, Estimates)'s wider-than-expected quarterly loss.

Treasury prices rose, sending the 10-year note yield down to 4.56 percent. The dollar tested recent lows against the euro, which traded above $1.01, and was down against the yen as well.

Light crude oil futures rose 18 cents to $27.84 a barrel in New York, where gold soared $6.80 to $323.90.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than 4-to-1 as 2.17 billion shares changed hands. On the Nasdaq, decliners beat advancers 5-to-2 as 2.34 billion shares traded.