NEW YORK - Stocks fell in early trading Friday and were on track to extend the week's losses after JPMorgan Chase revealed a trading loss of at least $2 billion from a failed hedging strategy that weighed on bank shares.
The news sent shares of the Dow component down sharply in early trading, and is the latest hurdle for a sector already besieged by the sovereign debt crisis in Europe and fears of slowing growth globally.
While other gains partially offset the trading loss, JPMorgan Chase estimates the business unit with the portfolio will lose $800 million in the current quarter, excluding private equity results and litigation expenses. The bank had previously expected the unit to earn a profit of about $200 million.
Jamie Dimon, the chief executive of the biggest U.S. bank by assets, cautioned that losses could grow by another $1 billion.
"While this is an isolated incident that has nothing to do with how the economy will recover, it is very painful to hear," said Tim Speiss, head of personal wealth advisors at EisnerAmper in New York. "Investors need to look at what this might do to JPMorgan's equity value, and whether it is something that could trouble the whole sector."
Bank of America and Citigroup sufferered early losses and the Financial Select Sector SPDR was off about 2 percent. The S&P financial sector likely extend its losses of almost 3 percent so far this month.
Financial stocks have been among the most volatile in recent months as investors question what the growth outlook for the U.S. and the debt crisis of Europe will mean for the group's profits. JPMorgan has fallen 11.4 percent since the end of March.
The CBOE VIX Volatility Index is up almost 10 percent this month in a sign of growing caution.
For the week, the S&P is down 0.8 percent, the Dow is off 1.4 percent and the Nasdaq is down 0.8 percent. All three are on track for their second straight week of losses.
The Dow rose modestly to break a six-day losing streak on Thursday, though a weak outlook from Cisco Systems Inc capped advances. The S&P 500 could not hold enough gains to close above its April low. Still, the index has rebounded after falling to a two-month low near 1,340 on Wednesday.
Reuters contributed to this story.
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