The Thomson Reuters/University of Michigan survey of consumers showed U.S. consumer sentiment fell far more than expected to 66.5 -- its lowest level in 11 months -- in a preliminary July reading -- down sharply from 76.0, June's final number. Earlier, the U.S. Labor Department reported the U.S. Consumer Price Index dipped 0.1 percent in June, which was weaker than the forecast for no change, and marked a third straight month of decline.
General Electric Co , Bank of America Corp and Citigroup Inc on Friday joined the list of major companies that beat Wall Street's expectations, along with Alcoa and Intel earlier this week, but shares of GE and both banks sold off after they reported a drop in quarterly revenues from a year ago. Bank of America and Citigroup also reported lower earnings compared with a year ago.
GE's stock fell 3.5 percent to $14.71, while Bank of America slid 7.7 percent to $14.20 and Citigroup lost 3.9 percent to $4.00.
The most important thing about second-quarter earnings is guidance, so investors are looking for revenue growth, said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St. Louis.
This week, investors are trading more on economic data after disappointing revenue results from major companies placed a dampener on an otherwise positive start to earnings season that began with strong results from Alcoa Inc , Intel Corp and CSX Corp .
Michael Sheldon, chief market strategist for RDM Financial in Westport, Connecticut, said the first week of earnings has been fairly positive, but investors will increasingly focus on economic data like today's consumer sentiment report to determine what the outlook for the economy is in the back half of 2010.
The Dow Jones industrial average <.DJI> was down 202.61 points, or 1.96 percent, at 10,156.70. The Standard & Poor's 500 Index <.SPX> was down 24.66 points, or 2.25 percent, at 1,071.82. The Nasdaq Composite Index <.IXIC> was down 54.29points, or 2.41 percent, at 2,194.79.
The S&P 500 has risen seven out of the past eight sessions. This week's strong start to the earnings season had led to optimism about a positive round of results to give the stock market some momentum through the third quarter.
Among the missteps, though, was Google Inc's second-quarter earnings per share, excluding items, which missed Wall Street's expectations for the first time in two years. The stock was down 5.2 percent at $468.21.
A positive note came from Goldman Sachs Group Inc , whose shares climbed 2.1 percent to $148.20 a day after the Wall Street firm settled a U.S. civil fraud case with the Securities and Exchange Commission.
But the overall banking sector was in a funk, with the KBW Banking Index <.BKX> down 4.5 percent, a day after the U.S. Congress approved the broadest overhaul of financial rules since the Great Depression and sent it to U.S. President Barack Obama to sign into law.
In the energy sector, shares of BP Plc fell 3.4 percent to $37.59 despite reports that a new cap on BP's stricken oil well in the Gulf of Mexico showed no sign of leaking on Friday.
The decline in BP's stock was in sync with a drop in August U.S. crude oil futures, which fell 82 cents, or 1.1 percent, to $75.80 a barrel in midday trading. The weak U.S. consumer sentiment and CPI data were taken as signs of sluggish demand, energy traders said.
(Editing by Jan Paschal)