After Opening Weakly, Markets Buckle Under Goldman Sachs

Stock market tumbles after Goldman Sachs fraud charge
Stock market tumbles after Goldman Sachs fraud charge

Traders sold first and decided to ask questions after the weekend. That was their response to the Securities and Exchange Commission charging Goldman Sachs with fraud, sending the major averages tumbling Friday after an already weak opening.

Financial stocks led the market lower -- Goldman (GS) alone dropped 13%, or $23.35, to $160.92 -- partly as a knee-jerk reaction to the fraud charges but also because the SEC's blockbuster move could lend support to more onerous financial regulatory reform. Derivatives like the one named in the SEC complaint have been among Wall Street's most lucrative businesses.

That said, stocks were weak across the board, with even the defensive sectors of health care and consumer staples selling off steeply. The blue-chip Dow Jones Industrial Average ($INDU) dropped 126 points, or 1.1%, to close at 11,019, while the broader S&P 500 ($INX) shed 20 points, or 1.6%, to 1,192. The tech-heavy Nasdaq Composite ($COMPX) declined 34 points, or 1.4%, to settle at 2,481.

"Goldman Was a Catalyst"

"This is just an excuse to sell after six straight days of gains," says Jeffrey Kleintop, chief market strategist at LPL Financial. "Every sector is down, not just financials, along with other asset classes like commodities. Investors were looking for a reason to take profits, and Goldman was a catalyst."

After all, the benchmark S&P 500 did enter first-quarter earnings season up nearly 80% from its bear-market low. Kleintop sees the market pulling back 5% to 10% in the near term as investors "sell" the earnings season news.

Lest we forget, the S&P started the last two earnings seasons trending higher, too -- until the reports started rolling out. The market lost 4% in the second half of January as fourth-quarter numbers were released, and it dropped more than 5% in the last two weeks of October as third-quarter profits came out.

The selling actually began at the open on weakness in tech stocks, which were dragged down amid concern over Google's (GOOG) accelerating costs and a weak revenue outlook from Advanced Micro Devices (AMD). Better-than-expected earnings from Dow components General Electric (GE) and Bank of America (BAC) helped the blue-chip index briefly turn positive before the Goldman news started a selling stampede.

It's no wonder what Wall Street's traders will be thinking about this weekend.