MarketView for May 10

Summary

Stock index futures fell sharply on Thursday evening as JPMorgan Chase dumbfounded Wall Street with news that its chief investment office had incurred "significant mark-to-market losses" that it said could "easily get worse."

JPMorgan's shares fell nearly 7 percent to $38.05 in after-hours trading and dragged down shares across the entire banking sector. Its executives called an extraordinary conference call with analysts at 5 p.m. EDT where Chief Executive Jamie Dimon said "egregious" mistakes had been made.

The news from JPMorgan comes at a difficult juncture for the stock market as investors wrestle with heightened concerns about Europe's debt crisis and signs are emerging that the U.S. economic recovery may be starting to slow.

S&P 500 futures fell 11.6 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Nasdaq 100 futures fell 16.75 points.

If there is nothing to reassure investors between now and the start of trading on Friday the weakness will likely to spill over into the cash market.

The other banks were not immune. Bank of America fell 2.9 percent to $7.48 and Goldman Sachs was down 2.5 percent to $103.65, while Citigroup saw a loss of 3.9 percent to $29.45.

The Chief Investment Office is the arm of the bank that JPMorgan has said it uses to make broad bets to hedge its portfolios of individual holdings, such as loans to speculative-grade companies.

The news came after a lackluster day for stocks. The Dow Jones Industrial Average and the S&P 500 eked out a modest gain but a disappointing outlook from Cisco Systems capped gains and sent the Nasdaq into negative territory. The Dow's modest rise broke a six-day losing streak for the blue-chip average. But the S&P 500 could not hold enough gains to close above its April low. Still, the S&P has rebounded after falling to a two-month low near 1,340 on Wednesday.

Cisco lost 10.5 percent to $16.81, its largest percentage decline since February 2011, making it the heaviest drag on the market. The network equipment maker forecast profits below Wall Street's estimates, sparking concerns about technology spending.

In a positive development, euro-zone officials said the bloc's countries are prepared to keep financing Greece until the country forms a new government.

The latest uncertainty surrounding Greece and the euro zone's sovereign debt crisis helped spark a drop in the S&P 500 in five of the past seven sessions, sending the benchmark index down 4 percent. While the region's difficulties persisted with the political gridlock in Greece, investors used the market's declines as a buying opportunity.

The CBOE VIX Volatility Index fell 6.2 percent to 18.83. This week, the VIX closed above 20 for the first time in a month in a sign of growing caution.

The number of Americans applying for jobless benefits fell last week, but from an upwardly revised figure from the previous week. The report follows last month's nonfarm payrolls report, which showed weak employment growth in April.

Signs of softness in the economy recently have led some investors to err on the side of caution and cut back on sectors exposed to the vicissitudes of the economic cycle.

With 449 of the S&P 500 companies reporting results through Thursday morning, 66.4 percent exceeded estimates, according to Thomson Reuters data, compared with more than 80 percent at the start of earnings season.

Approximately 6.75 billion changed hands on the three major equity exchanges, just above the 50-day moving average of 6.65 billion.