The Dow Jones industrial average had its first triple-digit drop of 2010 as mounting losses from loans at JPMorgan Chase & Co. and a disappointing consumer sentiment reading sent investors rushing from stocks.
Financial stocks led the market lower Friday, pulling major stock indexes down about 1 percent from 15-month highs. The Dow lost almost 101 points, its steepest drop since Dec. 31. Interest rates fell in the bond markets as investors bought Treasurys in search of safety.
JPMorgan, regarded as one of the strongest U.S. banks, warned investors it was too soon to say that losses on mortgages and other loans have peaked. The weakness in JPMorgan's consumer business hurt other financial stocks, which led the rest of the market lower.
Investors took little solace from a much stronger than expected profit report late Thursday from Intel Corp., the biggest maker of computer chips.
Commodity prices slumped as the dollar turned higher, and a disappointing report on consumer sentiment also weighed on the market. The preliminary Reuters/University of Michigan consumer sentiment index for January rose to 72.8 from 72.5 in late December but came in weaker than economists had forecast.
The news from JPMorgan brought concerns about profits at other big banks, many of which post results next week. Banks have been saying since the financial crisis exploded in the fall of 2008 that mortgages resetting at higher rates and job losses would push more loans into default. The latest comments gave investors a fresh reminder that the economy still needs more time to heal.
After a 10-month run in the market that has been all but unbroken, some investors think stocks are running low on gas. Light trading volume since November indicates there is little conviction behind the market's recent ascent. The Dow on Thursday closed above 10,700 for the first time since October 2008 and has climbed 62.1 percent since March, though it's still down 25.1 percent from its peak in October 2007.
The market will get additional signals about the economy next week as many more companies report earnings. U.S. markets are closed on Monday for Martin Luther King Jr. Day.
Adam Gould, senior portfolio manager at Direxion Funds in New York, said the reaction to JPMorgan's report signaled that investors had gotten too far ahead of themselves in predicting stellar earnings from companies.
"The market has been pricing in the best-case scenario for earnings for all of these companies," he said. "I think with an earnings report like this six months ago, we would've seen stocks rally."
The Dow fell 100.90, or 0.9 percent, to 10,609.65, the biggest drop since it lost 120 points on the final day of 2009. The broader Standard & Poor's 500 index fell 12.43, or 1.1 percent, to 1,136.03, and the Nasdaq composite index fell 28.75, or 1.2 percent, to 2,287.99.
Bond prices rose, pushing their yields lower. The yield on the benchmark 10-year Treasury note fell to 3.68 percent from 3.74 percent late Thursday.
The dollar rose against most major currencies. That hurt commodities, which are priced in dollars. A stronger greenback makes commodities like oil more expensive to foreign buyers.
Crude oil fell $1.39 to settle at $78 per barrel on the New York Mercantile Exchange. Gold fell.
Big week ahead for earnings
The day's slide as investors await earnings next week from Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co.
Jim Herrick, director of equity trading at Baird & Co. in Milwaukee, said JPMorgan's report prompted selling because the bank is seen as stronger than other banks and because financial stocks have been the biggest drivers of the market's climb since March.
"The concern is that this is a harbinger of things to come as far as earnings," he said. "It's only smart to take chips off the table after the run we've had and sit on the sides and wait for earnings to come out."
After a strong start to the year, the market's advance slowed during week and the modest gains were eaten by Friday's slide. Caution about earnings from the final three months of 2009 grew after aluminum producer Alcoa Inc. posted disappointing results.
For the week, the Dow slipped 0.1 percent, the S&P 500 index fell 0.8 percent and the Nasdaq lost 1.3 percent.
Among banks, JPMorgan fell $1.01, or 2.3 percent, to $43.68. Morgan Stanley fell 82 cents, or 2.6 percent, to $30.38, while Citigroup fell 9 cents, or 2.6 percent, to $3.42.
Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to a heavy 1.4 billion shares as options contracts expired on some stocks. Volume Thursday came to 888.1 million shares.
The Russell 2000 index of smaller companies fell 8.47, or 1.3 percent, to 637.96.
Britain's FTSE 100 fell 0.8 percent, Germany's DAX index fell 1.9 percent, and France's CAC-40 lost 1.5 percent. Earlier, Japan's Nikkei stock average rose 0.7 percent.