NEW YORK (CNNMoney.com) -- Stocks tumbled Friday, with the Dow industrials skidding to end just above 11,000, as financial shares retreated after U.S. regulators charged Goldman Sachs with defrauding investors.
The news overshadowed strong quarterly results from Google, General Electric and Bank of America.
The Dow Jones industrial average (INDU) lost 126 points, or 1.1%, to finish at 11,018. The indicator fell as much as 170 points earlier, dropping below 11,000, a key psychological level. The Dow ended at an 18-month high on Thursday.
The S&P 500 index (SPX) lost 19 points, or 1.6%, and the Nasdaq composite (COMP) lost 34 points, or 1.4%. The S&P 500 ended at an 18-month high Thursday, while the Nasdaq composite ended at a 22-month high.
Despite Friday's losses, the Dow and Nasdaq ended up for the week. The S&P was slightly lower.
News that the Securities and Exchange Commission (SEC) has charged Goldman Sachs (GS, Fortune 500) with fraud involving mortgage-backed securities sent the firm's shares down 12.8% and also dragged on the broader financial sector. The KBW Bank (BKX) sector index lost 3.5%. Citigroup (C, Fortune 500), Morgan Stanley (MS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) all declined.
"The news is introducing an unknown into the market, and so you're seeing a strong reaction to it," said Steven Goldman, market strategist at Weeden & Co.
He said investors are trying to understand if Goldman is just the tip of the iceberg and if more companies are involved. They also want to know whether more agencies than just the SEC will become involved and what this is going to mean for the financial sector going forward.
"The Street is worried about more regulation and thinks that something like this is going to cause it," said Tom Schrader, managing director at Stifel Nicolaus. "There's also the fact that Goldman could be facing some punitive damage and it's a pretty widely held stock."
However, stocks have also not seen a notable selloff in nearly two months and were perhaps primed for a retreat, the strategist said. Goldman Sachs provided the catalyst.
The Dow, Nasdaq and S&P 500 rose for seven of the prior eight weeks.
Treasury prices rallied Friday, sending the corresponding yields lower, as investors sought safety in government debt. The dollar gained versus the euro and fell against the yen. Oil and gold prices plunged.
The VIX (VIX), Wall Street's so-called fear gauge, spiked as much as 18% in the afternoon, the biggest runup in two months. By the close, it was up 15%.
Goldman Sachs: The SEC charged Goldman and a vice president, Fabrice Tourre, with failing to disclose conflicts of interest related to a sale of mortgage-related securities that caused two European banks to lose almost $1 billion.
Goldman client Paulson & Co. helped put together an investment offering of mortgage-related securities the hedge fund thought would lose value. Separately, Paulson took out a type of insurance that let it reap huge profits when those securities tanked as the housing market collapsed. But Goldman didn't tell other clients that Paulson was betting on the offering falling apart.
Stocks seem to cut losses after the SEC said it was not pursuing charges against Paulson, Schrader said, as this seemed to reduce fears of a broader crackdown.
The charges came as lawmakers investigate practices and complex investments that helped cause the financial crisis.
Quarterly results: Investors had a sour response to improved quarterly results from a trio of top-tier companies.
General Electric (GE, Fortune 500) reported first-quarter earnings that fell from a year earlier, but topped estimates, on revenue that fell from the prior year and missed estimates. GE said it is expecting earnings growth for the rest of the year, but that more cost-cutting measures may be needed to drive further growth.
Shares of the Dow component fell 2.7%.
Bank of America (BAC, Fortune 500) reported a quarterly profit of $3.2 billion, up from a year ago and easily beating analysts' forecasts. But shares fell 5.5%, with the stock falling in tune with the broader financial market.
Late Thursday, Google (GOOG, Fortune 500) reported higher quarterly earnings and revenue that easily beat expectations, thanks to a recovering advertising market. But investors took a "sell the news" approach and Google's stock fell 7.6% Friday.
Economy: The University of Michigan's consumer sentiment index slipped to 69.5 in mid-April from 73.6 earlier in the month. The reading was a surprise to economists, who forecast it would rise to 75.
On a more positive note, the housing market showed new signs of stabilization in a Commerce Department report released before the opening bell.
Housing starts rose to a 626,000 annual unit rate in March from a 616,000 annual unit rate in February. That was the highest rate of housing starts since November 2008 and topped forecasts for an increase to 610,000. Starts also rose over 20% from a year ago.
Building permits, a measure of builder confidence, rose to a seasonally-adjusted annual rate of 685,000, the highest tally since October 2008. Results topped forecasts and also showed permits rose 34% versus March 2009.
World markets: In overseas trading, European markets fell, with London's FTSE down 1.4%, France's CAC 40 down 1.9% and Germany's DAX down 1.8%. Asian markets slipped too, with the Hong Kong Hang Seng down 1.3% and the Japanese Nikkei down 1.5%.
Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.78% from 3.85% late Thursday. The 10-year had risen to as high as 4% a week ago, an 18-month peak. Treasury prices and yields move in opposite directions.
The dollar and commodities: The dollar gained versus the euro and fell against the yen.
COMEX gold for June delivery fell $23.40 to settle at $1,136.90 per ounce.
U.S. light crude oil for May delivery fell $2.27 to settle at $83.24 a barrel on the New York Mercantile Exchange.
Market breadth was negative. On the New York Stock Exchange, losers beat winners five to one on volume of 1.75 billion shares. On the Nasdaq, decliners beat advancers by over three to one on volume of 2.88 billion shares.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||4.53%||4.43%|
|15 yr fixed||3.96%||3.89%|
|30 yr refi||4.53%||4.43%|
|15 yr refi||3.94%||3.87%|
Today's featured rates:
Darius Dale is a senior macro analyst with investment research firm Hedgeye Risk Management. More
A recent study from the Federal Reserve Bank of St. Louis finds that some Millennials born in the 1980s may never make up the wealth they lost during the Great Recession. More
Mark Zuckerberg's big European test did not go well. More
In 1998, Ntsiki Biyela won a scholarship to study wine making. Now she's about to launch her own brand. More
Thanks largely to a progressive tax code, nearly 79 million households will not owe any federal income tax this year, according to estimates from the Tax Policy Center. More