Just when Wall Street was preparing for another strong weekly finish, civil fraud charges against one of the most powerful firms on Wall Street surfaced, rattling financial markets and sending stocks tumbling the most in two months.  Goldman Sachs, the firm in question, was accused by the U.S. Securities and Exchange Commission of defrauding investors.

The SEC accused Goldman Sachs (NYSE:GS) and one of its executives of selling mortgage investments to investors without disclosing a key information.

Fears that the latest happenings would give federal regulators more ground to overhaul financial regulations sparked a selloff, and stocks nosedived.  The Dow average, looking vulnerable to a pullback after its recent run, fell almost 170 points in the afternoon trade before regaining some ground to end just above 11,000.

Sentiments were so jittery that even greater-than-anticipated profit reports from Bank of America (NYSE:BAC) and General Electric Co. (NYSE:GE) failed to move investors.  Shares in those companies fell 5.5% and 2.7%, respectively. 

This morning’s stock futures suggest risk aversion is likely to continue today.  Asian markets closed mostly lower on concerns related to Goldman and China’s move to curb speculative real estate lending.  Ahead of the opening bell, Dow Jones industrial average futures fell 49 points, or 0.5%, to 10,935. Standard & Poor’s 500 index futures fell 6.20, or 0.5%, to 1,184.10, while Nasdaq 100 index futures fell 5.50 points, or 0.3%, to 2,004.25.

On Friday, a 13% drop in Goldman (NYSE:GS) shares weighed on the S&P 500.  The index closed down 0.2% for the week. However, strength in technology shares helped the tech-laden NASDAQ gain 1.1% during the week.  The strength in NASDAQ shares came on the back of a stronger-than-expected profit report from Intel (NASDAQ:INTC), strength in Apple’s (NASDAQ:AAPL) newly-launched iPad sales in the US, and Advanced Micro Devices’ (NYSE:AMD) unexpected first quarter profit.

Financials were the leading laggards Friday with their 3.5% fall.  There are concerns that Goldman’s problems would give more ammunition to advocates of financial reform and eat into banks’ profits and consequently limit their lending abilities.  So, Goldman took the sheen off a sector that many thought had finally turned a corner.  The week that was characterized with JP Morgan (NYSE:JPM), Intel (NYSE:INTC), CSX (NYSE:CSX) and Bank of America’s (NYSE:BAC)’s better-than-expected profit numbers ended on a bitter note.

Basic material shares ended Friday with a 2.3% loss and were down 2.2% for the week amid recovery concerns and reports that China would adopt a less accommodative monetary stance.  Friday’s declines saw all ten S&P sectors closing in the red, with oil and gas off 1.6% Friday and 0.6% for the week, industrials (-1.4% and +1.1%), tech (-1.4% and +1.6%), consumer services (-1.2% and +0.4%), utilities (-1.1% and -1.0%), telecommunications (-1.0% and -1.5%), consumer goods (-0.6% and -1.1%) and health care (-0.6% and -1.1%).

This week about one-quarter of the S&P 500 companies are scheduled to report their numbers.  Today, results are due from Citigroup (NYSE:C) and IBM (NYSE:IBM); on Tuesday from Apple (NASDAQ:AAPL) and Coca-Cola (NYSE:KO); on Wednesday from AT&T (NYSE:T), Boeing (NYSE:BA) and McDonald’s (NYSE:MCD); on Thursday from American Express (NYSE:AXP), Microsoft (NASDAQ:MSFT), and Verizon (NYSE:VZ); and on Friday from Honeywell (NYSE:HON), Schlumberger (NYSE:SLB) and Travelers (NYSE:TRV).

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