Lackluster earnings reports from Dow Jones industrials General Electric Co and Citigroup Inc sent stocks plunging on Friday, giving the Dow its biggest single-day percentage drop in nine months. The major indexes each lost more than 2 percent this week.
Soaring energy prices compounded the market's gloom over earnings, with crude oil returning to a four-month high on concerns about Iran's nuclear arms dispute. Meanwhile, a tempered outlook from Motorola Inc also disappointed investors.
While GE and Citigroup's results were just shy of analysts' estimates, the large-cap firms that released earnings this week would have needed blockbuster reports to satisfy Wall Street's overblown expectations, said Rick Pendergraft, an equity trader at Schaeffer's Investment Research.
"The ramp up we had into earnings let you know that people were expecting big things," Pendergraft said of the market's rally this month.
"Any time we go into an earnings season and the market is overbought, it sends up a caution flag for me," he said.
At the close of trading, the Dow dropped 213.32, or 1.96 percent, to 10,667.39, giving back all of the 325 points it had gained this year. That was the largest one-day decline since April 15, when the index slipped 1.9 percent. It was also the biggest one-day point drop since the Dow lost 307.29 on March 24, 2003.
Broader stock indicators also finished sharply lower. The Standard & Poor's 500 index lost 23.55, or 1.83 percent, to 1,261.49, and the NASDAQ dropped 54.11, or 2.35 percent, to 2,247.70.
Bonds were little changed, with the yield on the 10-year Treasury note slipping to 4.35 percent from 4.37 percent late on Thursday. The dollar was mixed against other major currencies in European trading, while gold prices edged lower.
The situation in Iran and new threats of terrorist attacks on the United States propelled the energy market. A barrel of light crude surged US$1.29 to settle at US$68.48 on the New York Mercantile Exchange, where natural gas also bounced off recent lows to add US$0.375 to US$9.28 per 1,000 cubic feet (28.3m3).
A larger-than-expected jump in consumer confidence did little to distract traders from earnings and rising crude oil. The University of Michigan's consumer sentiment index for January added nearly 2 points to read 93.4, topping economists' forecast of 92.5.
Optimism that the US Federal Reserve would soon end its string of interest rate hikes launched a New Year's rally that sent stocks to multiyear highs earlier this month, carrying the Dow above 11,000 for the first time since June 2001. But Friday's retreat erased much of those gains, and left the Dow in negative territory for the year. For the week, the Dow lost 2.67 percent, the S&P 500 was down 2.03 percent and the NASDAQ declined 2.99 percent.
Although this week's earnings data was mostly downbeat, stocks would have had a tough time pushing higher after their recent advance, said Susan Malley, chief investment officer of Malley Associates Capital Management.
"Earnings haven't been disastrous thus far, we've just had some big names that were a bit conservative in their outlooks," Malley said. "The news is not terribly bad, it just has not met the expectations of the investing community."
GE said its fourth-quarter profit tumbled 46 percent after absorbing nearly US$3 billion of losses from selling most of its insurance business. Excluding items, the results matched Wall Street estimates but failed to inspire investors. GE sank US$1.31 to US$33.37.