An underwhelming report on economic growth in China and the predictable return of eurozone worries drove the selling, which comes after two days of gains, including an especially strong bull run Thursday when all three major U.S. equity indices rose more than 1% and finished near the highs of the day. Negative reactions to some high-profile earnings reports didn't help matters as financial bellwethers JPMorgan Chase ( JPM) and Wells Fargo ( WFC) both topped Wall Street's consensus profit view but saw their shares slump nearly 4%. Google's ( GOOG) profit was above consensus as well but the company saw advertising pricing continue to weaken and was being criticized for a controversial two-for-one stock split plan. The Dow Jones Industrial Average dropped 137 points, or 1%, to close at 12,849, just four points above the blue-chip index's low for the day. The S&P 500 fell 17 points, or 1.3%, to settle at 1370, led lower by banking sector losses after their strong run through the first quarter. Energy and materials were also among the biggest sector losers. The Nasdaq lost 44 points, or 1.5%, at 3011, as heavyweight Apple ( AAPL) lost 3% to $605.03. Shares of the iPhone and iPad maker have been among the market's best performers all year, rising more than 50%, but the stock underperformed the broad market this week, losing 4.5%, and retreating after hitting a new all-time peak of $644 on Tuesday. For the week, the Dow fell 1.6%, the S&P 500 lost 2%, and the Nasdaq retreated 2.2%. Year-to-date, the indexes are still up 5.2%, 9.0%, and 15.6% respectively. The VIX, Wall Street's investor fear index, jumped 14% to 19.53. A reading above 20 is considered an indication of heightening distress. The VIX measures implied volatility through options pricing for the S&P 500.
NEW YORK ( TheStreet) -- U.S. stocks finished a volatile week with a thud on Friday.
The slowdown was attributed to weakness in export growth and the construction sector, while investment and domestic consumption supported growth. Michael Gayed, chief investment strategist at Pension Partners, thinks the latest headlines support the idea that the Federal Reserve may resort to additional stimulus measures. "For the bulls, the trifecta of slower growth in China, moderating inflation in the U.S., and moderately strong earnings only means one thing: Further monetary easing remains a very real possibility in the face of deflationary pressure," he said in an email. "Moderating inflation confirms the Fed's view that it can keep rates low for a while (bullish), slower than estimated growth in China means the People's Bank of China could begin to ease rates and jumpstart lending in response (bullish), and earnings surprising modestly on the upside means that there is a lot of room for expectations to continue to build for further stimulus (bullish). While QE3 remains a question mark, China's monetary stance may now be more important for the bulls than the Fed's." "
The worse than expected China report was allayed a bit by the trade numbers for the U.S. that showed exports growing fairly strong, surprisingly -- a narrowing trade deficit, and that can only happen if growth in the rest of the world is actually not as bad as one might think," added Brian Gendreau, market strategist, Cetera Financial Group. Commodities fell and the 10-year Treasury climbed on Friday. May oil futures were down 77 cents to $102.87 a barrel, while June gold futures lost $23.80 at $1,656.80 an ounce. The benchmark 10-year Treasury was up 18/32, diluting the yield to 1.99%, while the U.S. dollar index advanced 0.8%. Europe finished weak, further damaging sentiment on Wall Street as data showed Spanish banks are relying heavily on funding from the European Central Bank. Banco Santander ( STD) was down 4.5%. London's FTSE settled 1% lower and Germany's DAX gave up 2.4%. In Asia, however, Japan's Nikkei Average settled 1.2% higher and Hong Kong's Hang Seng index closed up 1.8% despite the disappointing China GDP data, with those markets focusing instead on the country's surging bank lending figures and the increasing possibility of monetary policy easing.
In U.S. economic news on Friday, the University of Michigan's gauge of consumer sentiment for April showed a slight decline month on month to a preliminary reading of 75.7 from a final reading of 76.2 in March. Economists in a Thomson Reuters survey expected a repeat of the final March reading. The Labor Department said today that the consumer price index for March rose 0.3%, compared with a gain of 0.4% in February. Gasoline prices were the biggest gainer and main reason behind the 0.3% increase. Stripping out the volatile food and energy components, the core figure rose 0.2% for March, compared with an increase of 0.1% in February. Both the core and headline data matched expectations exactly.
In corporate news, JPMorgan said strong investment banking results and an improvement in mortgage banking revenues powered profits in the first quarter. The nation's largest bank by assets and deposits reported net income on a managed basis of $5.38 billion or $1.31 per share, down slightly from $5.55 billion or $1.29 per share in the year-ago quarter. In the fourth quarter, the bank posted a net income of $3.7 billion or 90 cents per share. Excluding items, "core" earnings per share was $1.39 per share. Revenue came in at $27.4 billion, up 6% from the year-ago quarter and 24% over previous quarter. Analysts were expecting an earnings per share of $1.18 on revenues of $24.68 billion. The stock closed down 3.6% at $43.21. Wells Fargo ( WFC) reported a 21% quarter-over-quarter increase in mortgage banking revenue, pushing profits to record levels. The company earned $4.2 billion, or 75 cents a share during the first quarter, compared to fourth-quarter earnings of $4.1 billion, or 73 cents a share, and earnings of $3.8 billion, or 67 cents a share, during the first quarter of 2011 The performance beat the 73-cent consensus profit estimate, among analysts polled by Thomson Reuters. First-quarter revenue totaled $21.6 billion, beating the consensus estimate of $20.51 billion, mainly reflecting the strong mortgage origination volume. In comparison, Wells Fargo reported total revenue of $20.6 billion during the fourth quarter, and $20.3 billion, during the first quarter of 2011. Shares of Wells Fargo lost 3.5% at $32.84.
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"Even though at first glance, JPMorgan and Wells Fargo basically had good numbers -- as did Google -- once you kind of start probing deeper you find some bits for concern," said Doug Roberts, chief investment strategist, ChannelCapitalResearch.com, who cited the oversize impact of a few individual traders on JPMorgan's bottom line and that the bank is "taking a higher risk profile than previously." Google, the Internet search giant, posted strong quarterly earnings and announced a convoluted two-for-one stock split after Thursday's closing bell. The stock wasn't getting a benefit from the performance though, falling 4% to $624.60 as its average cost-per-click fell on both a year-over-year and sequential basis. Infosys Technologies ( INFY), the Indian software services company, said fourth-quarter profit rose 15.2% in dollar terms and sales jumped 10.5%, but revenue for fiscal 2013 would rise only 8% to 10%, below forecasts for the industry. The stock tumbled more than 14%. Dow Chemical ( DOW) raised its second-quarter dividend by 28% to 32 cents a share from 25 cents. The dividend will be paid on July 30. Shares rose 1.6% to $33.20. Coinstar ( CSTR), whose businesses include the Redbox DVD rental kiosks, provided a first-quarter outlook above analysts' estimates. Coinstar said it sees core earnings from continuing operations of $1.36 to $1.40 a share on revenue of $567 million to $569.2 million for the three months ended March 31. Analysts are calling for profit of 90 cents a share on revenue of $537.7 million. Coinstar attributed the forecast, in part, to strong DVD demand from consumers in February and March. The stock gained 7% to close at $65.78. -- Written by Andrea Tse and Michael Baron in New York. >To contact the writer of this article, click here: Andrea Tse.