Stocks slide on news of fraud case
NEW YORK – Financial shares led the stock market sharply lower Friday after federal regulators filed civil fraud charges against Goldman Sachs over its dealings in subprime mortgages.
The Dow Jones industrial average lost about 125 points, having been down as much as 170. At times, it fell below 11,000 after closing above that level Monday for the first time in more than a year and a half.
Analysts say the market was poised to fall after a steady run of gains the past two months, and the Goldman Sachs news gave investors a reason to sell and take some profits.
“Basically it’s sell, and ask questions later,” said Quincy Krosby, market strategist at Prudential Financial. “A market that wants to sell off will find an excuse.”
Stocks were already lower before news of the Securities and Exchange Commission’s charges against the leading investment bank. Investors were disappointed after Google reported earnings that didn’t live up to forecasts.
General Electric Co. and Bank of America Corp. reported profits that topped forecasts, but their stocks still fell. GE’s revenue came up short of expectations, while Bank of America said loan losses remain high.
The SEC charged Goldman and one of its vice presidents with failing to disclose key information to investors regarding complex mortgage-backed securities. The company’s stock fell $23.57, or 12.8 percent, to $160.70 in heavy trading, and the rest of the market followed. The company lost $14.2 billion in value Friday.
“It’s all a knee-jerk reaction to Goldman,” said Steven Goldman, chief market strategist at Weeden & Co., referring to the market’s drop. He said the fundamentals of the market, the upbeat economic signs that have powered its rally, have not changed.
Friday’s drop came after six straight days of gains that pushed the Dow to its highest close in more than 18 months. Stocks have been steadily rising in recent months on growing signs that the economy is recovering, albeit slowly.
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