Stock losses approached 1 percent Friday as investors grew concerned over bank earnings and economic reports showing tame inflation but no more optimism from consumers.
Banks were the market's sore spot, as investors took a dim view of JPMorgan, which posted earnings of 74 cents per share, easily beating expectations of 61 cents. Weak top-line revenue and continued credit losses left Wall Street looking for more from the banking titan.
Similarly, investors pushed down shares of Intel, which reported quarterly profit of 40 cents per share, 10 cents above estimates, and giving a bullish outlook as well.
The earnings disappointments clashed with economic reports showing growth but not at a high enough level to pull the Federal Reserve off the sidelines to begin raising interest rates.
Consumer prices rose 0.1 percent in December from November on modest gains in food and energy costs, while the Empire State manufacturing index hit 15.92 in January, a huge leap from its 4.50 reading in December.
Financials led the S&P 500 lower, joined by utilities and energy. The broad index saw all 10 of its sectors in negative numbers.
Officemax was the S&P's biggest gainer, surging more than 9 percent after JPMorgan upgraded the company to "overweight" from "neutral."
Elsewhere on the indexes, Home Depot was alone among Dow gainers, while Bank of America combined with JPMorgan as banks weighing on the bluechip index.
Intel helped bring a broad swath of semiconductors into red numbers, with Micron Tech the biggest percentage dropper in the group.
The Dow US Semiconductor index was off 2.3 percent while the US Banks index dropped 2.5 percent. Tobacco and home improvement were the only two Dow indexes to show positive numbers.
The day's other economic indicators did little to brighten the mood.
Stocks fell further after the Reuters/University of Michigan consumer sentiment survey showed little change in early January, despite expectatations that the reading would improve.
On the plus side, Interactive Data shares surged after the provider of financial market information said it was exploring strategic alternatives, which could include a sale of the company.
In deal news, a major move in the cosmetics industry was helping move markets.
Japan's Shiseido is buying San Francisco-based Bare Escentuals for $1.7 billion, the biggest acquisition in Shiseido's 138-year history. The deal, which equates to a 43 percent premium of $18.20 a share, lifted Bare Escentual's shares about 42 percent.
Elsewere in the markets, Hersha Hospitality Trust will offer 45 million common shares at $3, sending its price down.
Sealy shares slipped after earnings showed the first revenue growth in two years but weak margins.
There is one Fed speaker on the calendar today: Richmond Federal Reserve President Jeffrey Lacker will give a speech on the economic outlook at 12:30 pm at a luncheon in Richmond, Va.
Video game stocks may react to a report from NPD Group that showed revenue from video game and console sales rose at a 4 percent annual rate in December. The report indicates consumers are much more enthusiastic about the consoles right now than they are about the games.
Published reports this morning say Citigroup plans to dole out bonuses for 2009 that will be similar to 2008 payouts, and that Citi may cap individual cash payouts at about $60,000.
- Written by Peter Schacknow, Senior Producer, CNBC Breaking News Desk.