Two of Wall Street's greatest fears have been signs of a less-ebullient consumer and renewed terrorist attacks against U.S. interests. Friday morning brought examples of both -- an overnight bombing at a U.S. consulate in Pakistan and a weaker-than-expected consumer confidence report. The results were predictable.

Analyst downgrades of wireless stocks such as

AT&T Wireless

(AWE)

,

Sprint PCS

(PCS)

, and a warning by

Genesis Microchip

(GNSS)

contributed another level of concern, and traders reported difficulty in opening certain stocks due to the overwhelming level of sell orders.

The aforementioned and related shares were still down sharply at midday, but expectations (some fearful, some hopeful) that Friday would prove to be the much-ballyhooed capitulation session -- characterized by full-blown panic selling and extraordinary volume -- proved unfounded. At midday, major equity averages were recovering from their early lows.

As of 12:45 p.m. EDT, the

Dow Jones Industrial Average

was down 1.3% to 9377.7 vs. its early lows of 9260.99, its lowest level since Nov. 2. The

S&P 500

was down 1.3% to 996.44 vs. its intraday low of 981.63 Friday marked its first trades below 1000 since Sept. 25.

The

Nasdaq Composite

had also traded at a level not seen since the days following the Sept. 11 attacks. The Comp was lately down 0.8% to 1485.17 after having traded as low as 1445.44, its lowest level since intraday on Sept. 27. More impressively, the Russell 2000 was lately up 0.2% to 456.94 after having traded as low as 446.66.

The early misery in equities spread to the dollar, which was down vs. the euro and yen but off its early lows. Similarly, U.S. Treasuries had pared earlier gains; still, the benchmark 10-year Treasury note was up 24/32 to 100 17/32, its yield falling to 4.81%.

The University of Michigan's preliminary report for June showed consumer confidence fell to 90.8 vs. 96.9 in May amid expectations for a far smaller drop. In tandem with

Thursday's retail sales report, Friday's data heightened concerns about the consumer's ability to continue to shoulder the economic load.

"When you have two pieces of data you have to open your eyes a little," said Salomon Smith Barney economist Mitchell Held. "Yesterday's retail sales is more troublesome than today's confidence

but there's stuff out there that doesn't sucker me into the 'the consumer is tired and going home' routine," even if it's a different story in the financial markets.

Specifically, the economist noted the "full-tilt accommodative" stance of both monetary and fiscal policies, which should benefit the economy and consumer over time. Additionally, he observed consumers' buying power remains strong, with unemployment still relatively low and inflation quiescent.

Of course, Held's point of view is the economy will grow by 4% in the second half as the stimuli of low interest rates and higher government spending kick in. So perhaps it's understandable he's somewhat sanguine about Friday's data.

Concerns About the Consumer

Conversely, Anthony Karydakis, senior financial economist at Banc One Capital Markets in Chicago, forecast the economy will be moving forward in the second half, but at an "unimpressive pace," i.e. at a "subpar pace of growth," below 3.5%. Notably, he was a bit more concerned about the recent data.

"What we are seeing is strong evidence that consumer attitudes are starting to cave due to the pressure on the stock market," said Karydakis. "Whether that will translate into a substantial slowing in spending remains to be seen. Obviously, if the consumer becomes more defensive, that will have adverse implications for the second half in terms of the overall momentum of the recovery."

Meanwhile, the industrial production/capacity utilization data came in slightly lower than expected, suggesting business output remains moribund. Industrial production rose 0.2% in May, half the rise forecast by economists and down from 0.3% in April. Capacity utilization rose to 75.5 from 75.4 but came in below forecasts for a rise to 75.7. Elsewhere, business inventories fell 0.2%, as expected.

"Clearly we have lost some considerable momentum" from the impressive pace of manufacturing's first-quarter rebound, Karydakis said. "The issue to be sorted out is the extent to which this slowing carries over into the third and fourth quarters."

Indeed, that is the crucial issue investors are grappling with. The initial knee-jerk reaction today was one predicated on fears the economy's recovery is petering out, or heading toward the dreaded double-dip recession. By midday, many were rethinking the wisdom of that view, as well as the early decision to bail out of equities.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.