The close: Earnings season hits turbulence

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The second quarter earnings season hit some major turbulence on Friday, with the latest round of earnings from key U.S. financial firms failing to inspire investors at a time when the economic backdrop continues to suggest troubles ahead.

The Dow Jones industrial average, not long after celebrating a remarkable seven-day winning streak earlier this week, closed at 10,097.90, down 261.41 points or 2.5 per cent, marking its biggest one-day tumble since the end of June. The broader S&P 500 closed at 1,064.88, down 31.6 points or 2.9 per cent. In Canada, the S&P/TSX composite index closed at 11,569.65, down 171.12 points or 1.5 per cent.

The day began on a sour note. After markets closed on Thursday, Google Inc. reported a gain in quarterly earnings that nonetheless fell shy of expectations, leaving its shares primed for a setback. They fell 7 per cent on Friday.

However, the market really seemed to be distraught over the results from Bank of America Corp. and Citigroup Inc. Both showed declines that nonetheless topped expectations, but revenues were weak at a time when the entire financial sector is being overhauled by U.S. lawmakers and regulators. Bank of America shares fell 9.2 per cent and Citigroup Inc. fell 6.3 per cent.

A worse-than-expected reading on U.S. consumer confidence from the University of Michigan merely confirmed the downward trend in the market.

But the declines weren't confined to financials, or technology stocks for that matter. The widespread selloff affected all 30 stocks within the Dow. Among the casualties, General Electric Co. fell 4.6 per cent after it announced that it had returned to profitability in the second quarter. Home Depot Inc. fell 4.3 and Intel Corp., just days after reporting better-than-expected second quarter earnings and revenues, fell 2.3 per cent.

In Canada, commodity producers were weak after gold fell about $20 (U.S.) an ounce, to $1,188, and crude oil closed in on $76 a barrel. Among energy stocks, Suncor Energy Inc. fell 1.6 per cent and Canadian Oil Sands Trust fell 0.7 per cent. Among gold producers, Barrick Gold Corp. fell 1.9 per cent.

Financials were also hit hard, falling 1.5 per cent as they followed their U.S. counterparts. Manulife Financial Corp. fell 2.7 per cent and Royal Bank of Canada fell 1.7 per cent.