U.S. stocks closed sharply lower on Friday, following negative news that sent overseas stocks lower, as investors looked ahead to a heavy week of earnings.
The major indices had their worst week since the one ended March 27, closing down about one percent for the week. The Dow Jones industrial average fell 357 points and dipped into the red for the year before coming off lows in the close to eke out a gain for 2015, with American Express and 3M among the greatest decliners. (Tweet This)
Despite the major decline, analysts noted that the indices were still within a range near all-time highs.
"I don't think it's a data panic. The volume is good but not what it would be" if it was about data, said JJ Kinahan, chief strategist at TD Ameritrade. "It looks like profit-taking." He also noted options expirations on Friday.
"I think what's more market moving (than domestic data) is Europe and concerns about Greece, and the put trading rules (in) China," Jim Meyer, chief investment officer at Tower Bridge Advisors.
Meyer said the negative reaction in equities and futures was more of an "aftershock." "It should really not affect us at all. The Chinese market has been an unusual source of strength," he said. "In a very quiet market on a Friday it doesn't take much to move the market."
European stock indices ended sharply lower on Friday, following a selloff in Chinese futures over news of coming government regulation to expand short-selling and limit over-the-counter margin trading.
"We know on Monday China has potential being down a lot," said Peter Boockvar, chief market analyst at The Lindsey Group. "Greece is an issue again."
Greek Finance Minister Yanis Varoufakis met with IMF officials on Friday, as investors became increasingly nervous about the funding crisis in Greece.
"I think that combination of a stronger euro and Greek chatter has profit-taking in the euro zone," said Art Hogan, chief market strategist at Wunderlich Securities.
The U.S. dollar held steady, with the euro near $1.08, its high for the week.
German bund yields dipped below 0.05 percent, Reuters said. Italian, Spanish and Portuguese 10-year bond yields jumped more than 5 percent.
Boockvar noted that the selloff in U.S. index futures and European equities came within an hour after Chinese stock futures fell around 5 a.m. ET. U.S. stocks are also near levels of resistance at the high end of the recent trading range of 2,040 and 2,120 on the S&P 500, he said.
"The S&P futures are lower this morning on the back of weakness overseas," BTIG's Chief Technical Strategist Katie Stockton said in a note. "The pullback follows new all-time highs in small- and mid-cap indices, although the SPX has yet to follow suit. We think a brief pause will allow for a breakout, noting the DeMark indicators support about four days of consolidation. We think a bullish bias is appropriate with breakouts far outnumbering breakdowns among individual stocks."
The S&P 500 fell below its 50-day moving average of 2,085.02. The Dow dipped below its 50-day moving average.
"If the market closes down today, the market will have failed to break out of its current consolidation range," Lance Roberts, general partner at STA Wealth Management, said in a note. "This suggests more sloppiness going into next week."
Analysts also noted some follow-through from Federal Reserve Vice Chair Stanley Fischer statements on Thursday that a rate hike would come unless economic data showed a continuation of the first-quarter's weakness.
"Given his position, the last thing he wants to do is come out and confuse markets," said Prudential Financial's Quincy Krosby, noting a similar tone with Fed Chair's Janet Yellen's March comments that a rate hike would come gradually. "Right now that's where they are and the market doesn't like it."
However, Fischer's comments come amid a slew of other Fed speakers in the past few days.
There's almost "too much transparency," Hogan said. "What the market does is instinctively react to every one of them. ... This transparency seems to be muddling the market. We should overweight the voters and take their comments in context."
rose more than expected in April, a survey released on Friday showed.
The data "doesn't impact us in the market today," said Peter Cardillo, chief market economist at Rockwell Global Capital. He advised investors to be "cautious and prudent" ahead of a likely pullback, with Friday's earnings in the industrials sector adding to some weakness in the market.
General Electric reported adjusted quarter profit of 31 cents per share, 1 cent above estimates. Revenue was below forecasts, due in part to a $950 million negative impact from currency effects.
Honeywell beat estimates by 2 cents with quarterly profit of $1.41 per share, though revenue fell slightly below analyst forecasts. The company gave a cautious sales outlook, but said expanding profit margins should boost the bottom line.
After the bell on Thursday, American Express reported earnings above estimates. However, revenue missed expectations due to a strong dollar and the end of several co-branding relationships.
"If we can just get out of earnings flat, I think that will be a big (head)wind," said John Canally, investment strategist and economist at LPL Financial. After a financials-heavy week of reports, investors will get a better sense of the economic environment with a broad swath of earnings, he said.
Futures held lower but above morning lows after the consumer price index showed an increase of 0.2 percent in March, below expectations of 0.3 percent.
However, the figure marked the second-straight month of gains and matched February's 0.2 percent gain. Core CPI, excluding food and energy, came in slightly above expectations at 0.2 percent, the same level as in February.
"Bottom line, the decline in CPI is all energy and the core rate has been running between 1.6 to 2 percent since the middle of 2012 (when it was running above 2 percent) driven by services inflation led by rents," Boockvar said in a note. "The deflation argument I believe is nonsense and if energy prices just stop going down, then we've seen the bottom in the inflation stats."
The Dow Jones Industrial Average closed down 279.47 points, or 1.54 percent, at 17,826.30, with American Express falling nearly 4.5 percent to lead all 30 blue chips lower.
The closed down 23.81 points, or 1.13 percent, at 2,081.18, with consumer discretionary and information technology falling nearly 1.5 percent to lead declines in all 10 sectors.
TD Ameritrade's Kinahan said the decline in technology stocks was mostly due to "people taking profits... because they don't want to play earnings."
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.
For every four decliners one advanced on the New York Stock Exchange, with an exchange volume of nearly 890 million and a composite volume of 3.6 billion in the close.
High-frequency trading accounted for 47.5 percent of April to date's daily trading volume of about 6.1 billion shares, according to TABB Group. During the peak levels of high-frequency trading in 2009, about 61 percent of 9.8 billion of average daily shares traded were executed by high-frequency traders.
The U.S. 10-year Treasury yield fell as low as 1.85 percent.
"All day long this has been a "grind" trade on light volume," said Kevin Giddis, head of fixed income capital markets at Raymond James. "But, once oil prices started to fall, the trade turned from a short covering trade to a defensive buying trade and yields fell 3 basis points in the move. Greece and equities have been the story since the morning numbers came out. Foreign interest in U.S. Treasurys remains strong."
Crude oil futures settled down 97 cents, or 1.7 percent, at $55.74 a barrel but posted gains for the fifth week in a row. Gold futures settled up $5.10 to $1,203.10 an ounce.
Trading was affected in Europe and Asia Friday morning by an outage on Bloomberg's trading terminal, resulting in a treasury auction in the U.K. being postponed.. By 10:58 a.m. ET, the company said that service was fully restored. (Disclosure: Bloomberg is a competitor of CNBC.)
—Reuters and CNBC's Patti Domm and Peter Schacknow contributed to this market report.
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