Financial shares led the stock market sharply lower Friday after federal regulators filed civil fraud charges against Goldman Sachs over its dealings in subprime mortgages.
The Dow Jones industrial average lost about 125 points, having been down as much as 170. At times, it fell below 11,000 after closing above that level Monday for the first time in more than a year and a half.
Analysts say the market was poised to fall after a steady run of gains the past two months, and the Goldman Sachs news gave investors a reason to sell and take some profits.
"Basically it's sell, and ask questions later," said Quincy Krosby, market strategist at Prudential Financial. "A market that wants to sell off will find an excuse."
Stocks were already lower before news of the Securities and Exchange Commission's charges against the leading investment bank. Investors were disappointed after Google reported earnings that didn't live up to forecasts.
General Electric Co. and Bank of America Corp. also reported profits that topped forecasts, but their stocks still fell. GE's revenue came up short of expectations, while Bank of America said loan losses remain high.
The SEC charged Goldman and one of its vice presidents with failing to disclose key information to investors regarding complex mortgage-backed securities. The company's stock fell $23.57, or 12.8 percent, to $160.70 in heavy trading, and the rest of the market followed. The company lost $14.2 billion in value Friday.
"It's all a knee-jerk reaction to Goldman," said Steven Goldman, chief market strategist at Weeden & Co., referring to the market's drop. He said the fundamentals of the market, the upbeat economic signs that have powered its rally, have not changed.
The charges come as the Obama administration seeks greater regulation of the nation's banks and their trading of exotic securities like those involved in the Goldman case. These kinds of investments are widely seen as one of the triggers of the financial crisis that crippled the nation's financial system in the fall of 2008.
"Road blocks for financial regulation have taken a hit today," said Thomas Villalta, co-portfolio manager of the Jones Villalta Opportunity Fund.
Analysts say other banks that also traded these types of securities will be closely scrutinized. That means the financial industry could continue to struggle because of uncertainty about reform and other potential investigations.
Friday's drop comes after six straight days of gains that pushed the Dow to its highest close in more than 18 months. Stocks have been steadily rising in recent months on growing signs that the economy is recovering, albeit slowly.
The Dow fell 125.91, or 1.1 percent, to 11,018.66. The Standard & Poor's 500 index dropped 19.54, or 1.6 percent, to 1,192.13, while the Nasdaq composite index fell 34.43, or 1.4 percent, to 2,481.26.
About five stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 8.1 billion shares, compared with 6 billion shares Thursday.
Investors looked past economic news. The Commerce Department said housing construction rose to a 16-month high in March. However, construction of single-family homes, the most important segment of the market, fell. Economists are also concerned about continued hurdles in the housing market, like rising mortgage rates and the end this month of a homebuyer tax credit. A separate report showed consumer sentiment fell this month.
With stocks reeling, investors sought safety in Treasury bonds. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.77 percent from 3.84 percent late Thursday.
The dollar mostly rose against other major currencies. Gold fell.
Crude oil fell $2.27 to settle at $83.24 a barrel on the New York Mercantile Exchange.
The Chicago Board Options Exchange's Volatility Index, which measures how much disruption investors expect in the market, spiked 15 percent to its highest level in a month after the Goldman news came out.
Results from Bank of America and General Electric both topped expectations, as other earnings reports have done this week. Stocks jumped Wednesday after encouraging forecasts from JPMorgan Chase & Co. and Intel Corp.
GE said losses are beginning to moderate in its battered lending division, GE Capital. But its revenue did fall short or expectations, which has been hurting the stock.
Bank of America said strong trading revenue helped offset ongoing consumer loan losses. However, it did note those loan losses — which have cost banks hundreds of billions of dollars — are starting to ease.
Bank of America fell $1.07, or 5.5 percent, to $18.41
GE fell 53 cents, or 2.7 percent, to $18.97. Google fell $45.15, or 7.6 percent, to $550.15 after investors grew concerned that Google was seeing expenses rise too quickly.
The Commerce Department said construction rose 1.6 percent to a seasonally adjusted annual rate of 626,000 last month. Economists polled by Thomson Reuters had forecast construction would rise to 610,000 units.
Applications for building permits, considered a good gauge of future activity, rose to an annual rate of 685,000. Economists were expecting applications to rise to 630,000.
Also, a Reuters/University of Michigan consumer sentiment reading fell unexpectedly.
The Russell 2000 index of smaller companies fell 9.59, or 1.3 percent, to 714.62.
Overseas, Britain's FTSE 100 fell 1.4 percent, Germany's DAX index dropped 1.8 percent, and France's CAC-40 fell 1.9 percent. Japan's Nikkei stock average fell 1.5 percent.
For the week
The Dow Jones industrial average closed the week up 21.31, or 0.2 percent, at 11,018.66. The Standard & Poor's 500 index lost 2.24, or 0.2 percent, to 1,192.13. The Nasdaq composite index is up 27.21, or 1.1 percent, at 2,481.26.
The Russell 2000 index, which tracks the performance of small company stocks, rose 11.67, or 1.7 percent, to 714.62.
The Dow Jones U.S. Total Stock Market Index — which measures nearly all U.S.-based companies — rose 2.80 or 0.02 percent for the week to 12,318.83. It's up seven straight weeks, its longest winning streak since the seven weeks ended May 18, 2007.