Stocks posted their biggest loss since February on Friday after the SEC charged Goldman Sachs with securities fraud for its handling of subprime-mortgage products.
Major indexes took a hit but finished off their lows for the day: The Dow lost 125.91, or 1.1 percent, to close at 11,018.66, after being down as much as 170 points earlier. The S&P 500lost 1.5 percent, ending the week below the 1,200 mark. And the CBOE volatility index, widely considered the best gauge of fear in the market, surged, topping 18, though it was up near 20 earlier.
This is the biggest one-day drop for stocks since February, but the Dow still managed to finish higher for the week, marking the seventh straight week of gains — the blue-chip index's longest streak in nearly three years.
The Nasdaq also logged a seventh straight up week but the S&P 500 finished the week down about 2 points, snapping a six-week winning streak.
For the week, technology and industrial stocks were the best performers as traders increasingly bet on the business recovery. But today, consumer staples and health care were the strongest as investors played it safe.
Goldman Sachs shares dropped $23.57, or 13 percent, to close at $160.70 today after the SEC charged the firm with securities fraud. It was the stock's biggest dollar drop ever. More than 101 million Goldman shares changed hands today, more than 10 times the 10-day average volume of 8.6 million shares.
The overall market volume was heavy as well: About 13.7 billion shares changed hands on the three major exchanges, the highest since last May. Declienrs outpaced advancers, roughly 5 to 1.
Regulators allege that Goldman, which had been the golden child of Wall Street while other firms around it tarnished during the financial crisis, failed to disclose conflicts of interest in subprime mortgage securities it sold to investors, who ultimately lost more than $1 billion.
Goldman vowed to defend itself.
"The SEC's charges are completely unfounded in law and fact," the company said. "We will vigorously contest them and defend the firm and its reputation."
Oppenheimer downgraded its rating on Goldman to "perform" from "outperform" and dropped its $228 price target, saying it thinks the company will still post strong earnings (which are due out next Tuesday) but will be vulnerable to more charges and fines.
The news rippled through the whole financial sector: Bank of America, JPMorgan, Morgan Stanley and Citigroup were all down about 4 to 5 percent.
The banking sector had already gotten off to a weak start after First Horizon, the largest bank in Tennessee, reported its eighth straight quarterly loss and said it expects margins to remain flat throughout the rest of the year unless the Fed raises rates.
