updated 1/22/2010 6:49:55 PM ET 2010-01-22T23:49:55

The stock market suffered its worst setback in more than 10 months as investors rejected President Barack Obama's plans to restrict big banks and earnings reports that just weren't good enough.

Major Market Indices

The Dow Jones industrial average had its fourth big drop in five trading days Friday, sliding 217 points. The worst fall came over the past three days, when the Dow lost 552 points, or 5.2 percent. All the major indexes fell more than 2 percent Friday.

Investors are finding bad news wherever they look. Even before Obama announced his plan on Thursday, they were selling stocks on disappointing earnings and concerns that a possible slowdown in China's economy might spread. The mood in the market was dark enough that upbeat earnings Friday from General Electric Co. and McDonald's Corp. weren't enough to sway investors.

Another jolt to the market: Mounting Senate opposition to the reappointment of Federal Reserve Chairman Ben Bernanke, whose term ends Jan. 31.

Stocks have had their worst showing since they began their recovery last March. The market also is seeing the kind of volatility that dominated the market's long slide — the Dow has had triple-digit moves in five straight days for the first time since December 2008.

The Dow lost 4.1 percent this week, its worst week since it hit a 12-year low in March. It had reached its highest level since Oct. 1, 2008, only this past Tuesday, closing at 10,725.43.

Video: Breakdown of earnings reports

John Brady, a senior vice president of global interest rates at MF Global, said concerns surrounding Obama's plan and China's efforts to slow its economy have investors reducing risk.

Obama rattled the market Thursday after asking Congress for limits on how large big banks can be and to end some of the risky trading large financial companies have used in recent quarters to boost their profits. It's not clear what will come of the proposed changes but investors are selling anyway.

"It appears to be a move to put some shackles on risk-takers," Mitch Schlesinger, managing partner at FBB Capital Partners in Bethesda, Md., said of the new proposals.

The problem with earnings reports is that they're not meeting investors' high expectations. Tech stocks were among the big losers Friday after Google Inc.'s fourth-quarter revenue didn't meet forecasts, and after a Citigroup analyst lowered his rating on the stocks of seven chip makers.

The market is particularly sensitive to tech companies, since they are seen as indicators that the economy is returning to health — or possibly backsliding. But any part of any company's earnings report has the potential to upset the market.

"We expect (earnings) to be better," said Brett D'Arcy, chief investment officer at CBIZ Wealth Management Group in San Diego. "People are being more particular."

In some respects, stocks' big plunge isn't a surprise. Many analysts have been predicting a correction, which technically is a drop of 10 percent from a recent market high, since before the start of the year. They have warned that investors were expecting too much from companies this early in an economic recovery. They warned that there was no way that the market could sustain the rally that lifted the Standard & Poor's 500 index 65 percent from its March 9 lows.

The Dow fell 216.90, or 2.1 percent, to 10,172.98. The Dow's three-day loss was its worst since March. A 115-point gain Tuesday left the Dow down 537 points over five days.

The Standard & Poor's 500 index fell 24.72, or 2.2 percent, to 1,091.76. The index is down 5.1 percent in three days, its worst drop since March 2009.

Friday's drops were the worst for the Dow and the S&P 500 index since Oct. 30.

The Nasdaq composite index fell 60.41, or 2.7 percent, to 2,205.29, reflecting a pullback in technology stocks in response to Google's earnings, and also an analysts' downgrade of chip makers.

For the week, the Dow lost 4.1 percent, the S&P 500 index slid 3.9 percent, and the Nasdaq lost 3.6 percent.

There is more uncertainty for the markets next week, and not just because more earnings reports will arrive. The Fed holds its first meeting on interest rates of 2010. No one expects the central bank to boost rates but investors will be looking for the Fed's take on the economy.

There are signs the big moves in the market will continue. The Chicago Board Options Exchange's Volatility Index jumped 52.5 percent for the week. An increase in the VIX, which is known as the market's fear gauge, is a sign that investors predict more gyrations in stocks. The VIX closed Friday at 27.31, above its historical average of 18-20 but well below the 89.5 it peaked at in October 28, during some of the worst selling of the financial crisis.

Tech stocks suffered in particular Friday. Google dropped $32.97, or 5.7 percent, to $550.01, while chip maker Advanced Micro Devices Inc. fell $1.11, or 12.4 percent, to $7.88.

Shares in GE and McDonald's both rose on their earnings, but didn't motivate investors to buy across the market.

GE reported a better-than-expected profit and said orders and backlogs for its products and services are increasing. Its shares rose 9 cents to $16.11. McDonald's earnings showed that it was holding up better than its competitors as consumers cut back their spending. The stock rose 19 cents to $63.39.

Five stocks fell for every one that rose on the New York Stock Exchange. Consolidated volume came to 6.3 billion shares compared with 6.95 billion Thursday.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was flat at 3.59 percent from late Thursday.

The dollar was mixed against other major currencies, while gold fell.

Crude oil fell $1.54 to settle at $74.54 per barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies fell 11.24, or 1.8 percent, to 617.12.

Overseas, Britain's FTSE 100 fell 0.6 percent, Germany's DAX index lost 0.9 percent, and France's CAC-40 dropped 1.1 percent. Japan's Nikkei stock average fell 2.6 percent.

For the week
The Dow Jones industrial average closed the week down 436.67, or 4.1 percent, at 10,172.98. The Standard & Poor's 500 index fell 44.27, or 3.9 percent, to 1,091.76. The Nasdaq composite index fell 82.70, or 3.6 percent, to 2,205.29.

The Russell 2000 index, which tracks the performance of small company stocks, fell 20.84, or 3.3 percent, for the week to 617.12.

The Dow Jones U.S. Total Stock Market Index — which measures nearly all U.S.-based companies — ended at 11,182.41, down 422.41, or 3.6 percent.

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