Stocks End the Week On a Sour Note, S&P 500 Falls 3%

Stocks sold off hard to end the week Friday as concerns about bank earnings, deflation and consumer sentiment put the easy gains seen since the July 4th break into question.

The Dow sold off 2.5%, losing 261 points to close at 10,098. The Nasdaq lost 70 points, or 3.1%, to close at 2,179 and the S&P 500 fell 32 points, or 2.9%, to close at 1,065.

With a 7% run-up in the S&P 500 since July 6th, investors felt uncomfortable sitting on the gains and used today to lock-in some of those profits.

To start of the day, Bank of America (NYSE: BAC) and Citigroup (NYSE: C) reported their second quarter results, which showed a much grimmer picture than JP Morgan's (NYSE: JPM) report yesterday. While both banks beat their earnings estimates, loans continued to decline. At BofA, capital markets revenues and net interest income were weak, and credit trends didn't improve as much as had been expected, according to analysts. BofA's stock fell over 9% today, while Citi was down 6%.

On top of the disappointing bank earnings, data from the government showed that consumer prices fell 0.1%, marking the third straight month of declines. While this would be seen as a good thing under normal circumstances, with deflationary pressures abound and fears of a double dip recession, this shows that businesses have no pricing power with a consumer that is tight with her purse strings.

Adding fuel to the fire was a key consumer confidence reading that fell below 70. The University of Michigan consumer confidence index for July was reported 66.5, down from a reading of 76 in June and below the consensus of 74.

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