Financial stocks plunged on Friday in the heaviest trading this year, dramatically ending Wall Street's six-day winning streak as fraud charges against Goldman Sachs and disappointing earnings sent investors running for cover.
The decline was the market's biggest in nearly two months, taking the shine off a strong rally just as investors await a crush of earnings reports next week.
It's going to take a while for the markets to digest this as investors weed out what it could mean for Goldman and if other banks could be hit with something similar, said Tom Lydon, president of Global Investment Trends in Newport Beach, California.
Financial shares around the world sank on the news as investors worried about a potential crackdown on other companies, with rival investment bank Morgan Stanley
The CBOE Volatility index <.VIX>, Wall Street's favorite measure of investor fear, surged 16 percent.
The Dow Jones industrial average <.DJI> was down 125.91 points, or 1.13 percent, at 11,018.66. The Standard & Poor's 500 Index <.SPX> was down 19.54 points, or 1.61 percent, at 1,192.14. The Nasdaq Composite Index <.IXIC> was down 34.43 points, or 1.37 percent, at 2,481.26.
After a rally that lasted six straight weeks, stocks were down as Google Inc
Bank of America reported higher-than-expected earnings but said loan demand was low, while GE posted weak first-quarter revenue.
People are looking for top-line growth more than the bottom line this quarter, and GE just didn't have what was needed, Lydon said.
BofA fell 5.5 percent to $18.41 and was the top percentage decliner on the Dow. GE, another Dow component, sank 2.7 percent to $18.97.
Google lost 7.6 percent to $550.15 a day after it posted a 23 percent jump in quarterly revenue, but some investors had hoped for even better results.
On the upside, Mattel Inc
The Goldman news also had an impact on commodities, with crude oil futures dropping 3 percent to $82.95 per barrel.
In economic news, the Thomson Reuters/University of Michigan's Surveys of Consumers showed consumer sentiment took a surprising negative turn in early April due to a grim outlook on income and jobs.
U.S. housing starts rose more than expected in March while permits to build new homes scaled a 17-month high, according to a government report.
Trading volume was the biggest since May 8, 2009. About 13.7 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq. Last year's estimated daily average was 9.65 billion.
Decliners outnumbered advancers on the New York Stock Exchange by a ratio of about five to one, while on the Nasdaq, about almost three stocks fell for every one that rose.
(Editing by Kenneth Barry)