Updated from 1:46 p.m. EDT

Bears had the edge Thursday as crude's sojourn below $60 a barrel hammered energy stocks without producing a corresponding benefit for the broader market.

Crude for November delivery finished down $1.38 to $61.03 a barrel, the lowest close since the end of July. The contract dipped below $60 earlier in the session. The slide came after a bearish report on natural gas inventories. But given an equivalent slide in energy stocks, the market was unable to find relief.

The lack of a positive response reflected the market's other concern of late: corporate earnings guidance.

On Thursday, disappointing forecasts from eBay ( EBAY) and Pfizer ( PFE) and a huge loss at Ford ( F) kept stocks from reprising the impressive rally seen Wednesday afternoon.

After soaring 1.71% and leading the market higher on Wednesday, the Nasdaq Composite was recently down 23 points, or 1.1%, at 2069, following the disappointment from eBay, which was down 6.7%.

Ford and Pfizer were also weighing on the Dow Jones Industrial Average, which was down 124 points, or 1.2%, at 10,290.

Some trend-watchers were also pointing to the key -- and today negative -- role being played by the energy sector. The Dow, for one, suffered from a 3.4% drop in Exxon Mobil ( XOM). But most of the impact was being felt on the S&P 500, recently down 17 points, or 1.4%, at 1179.

The market-cap-weighted broad index was weighed down by hefty drops in the energy sector. The Amex oil index was also sliding, losing 3.32% in recent action, led by big drops in Amerada Hess ( AHC), ConocoPhilips ( COP), Marathon Oil ( MRO) and Valero Energy ( VLO), which were all losing more than 4%.

"The energy sector is still the 800-pound gorilla for this market," says Jack Ablin, chief investment officer at Harris Trust.

Even after falling sharply in the first two weeks of October -- the Amex Oil Index dropped 13.8% from Sept. 30 through the close of trading on Oct. 17 -- the energy sector still accounts for 9.5% of the total market capitalization of the S&P 500, according to Zacks Investment Research.

The spectacular rise of energy prices and energy shares this year has made the commodity sector the success story of this year's market. But it could also be the market's biggest threat.

Concerns that soaring energy costs are seeping into core inflation have spooked the market for more than a month. Fears that profits will be squeezed further and/or that inflation pressures might push the Federal Reserve to break the back of the economy led the major indices to five-month lows last week.

But now that oil prices seem to be retreating, the importance of energy stocks to the larger equity picture is becoming clearer.

According to Donald Selkin, director of equity research at Joseph Stevens, crude oil at $60 per barrel carries a lot of weight for the market psychologically.

"If the barrel goes down to the $50s, people will start viewing Fed talk with a bit more perspective. Bond yields may come down a little, and as a matter of fact, maybe the Fed won't be yakking as much as it has about inflation," he says.

But the key, in the interim, is the response of energy shares. On Wednesday, they managed to rise even as oil futures fell, supporting the rally. But that won't happen forever.

"We'll reach some kind of medium at some point, when investors start to realize that there is a disconnect between oil the commodity and the fortunes of the energy companies," says Harris Trust's Ablin.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback; click here to send him an email.

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