Disappointing employment numbers and mounting sovereign debt worries pushed banking stocks sharply lower Friday.
After a double dose of bad news spurred a broad sell-off, the KBW Bank Index closed down 4.43%.
The U.S. added fewer jobs in May than economists were expecting, and there were signs that the European debt crisis could spread to Hungary.
The euro slid at one point Friday to $1.2018 — a four-year low — after a spokesman for Hungary's new government reportedly said the country is likely headed for a debt crisis similar to Greece's.
"A combination of those [things] and the fact that is now a weekend coming up, I just think it is causing people to pull to the sidelines," said William D. Rutherford, the head of Rutherford Investment Management LLC in Portland, Ore. "They have to get this sovereign debt issue in Europe under control or they run the risk of more problems."
Investors are quicker to close their positions before a weekend because they remain skittish about the unexplained plunge in stocks in early May, Rutherford said.
"We're still seeing some lingering effects of the flash crash," he said.
Joseph Saluzzi, co-head of trading with Themis Trading LLC in Chatham, N.J., said there are deeper worries at play — that Europe's troubles are just a precursor to what the U.S. could face as its deficit rises.
"We really have a lot of issues," Saluzzi said. "Our deficit is just as large as theirs."
Friday's jobs report did little to bolster confidence in the U.S. economy. The Labor Department said there were 431,000 non-farming payroll jobs created in May; investors were hoping for 510,000.
May's numbers were especially disappointing because the government hired more than 400,000 people to conduct the census, so private-sector hiring remains tepid.
Saluzzi said banking stocks were largely trading down in line with the other sectors Friday, although financials have been softer lately on investor worries that new accounting rules could hurt their recovery.
The Dow Jones industrial average fell 3.15% and the Standard & Poor's 500 index was down 3.44%.
Large and midsize banking companies were down sharply.
JPMorgan Chase & Co. fell 3.79%; Wells Fargo & Co., 3.74%; Bank of America Corp., 2.91%; and Citigroup Inc., 17 cents, to $3.79. U.S. Bancorp, 3.05%; SunTrust Banks Inc., 6.95%; and M&T Bank Corp., 4.56%. Comerica Inc. fell 4.58%; Fifth Third fell 5.03%, KeyCorp fell 4.9% and PNC Financial Services Group Inc. fell 5.42%.