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So much for Thursday’s rally. After Thursday saw the biggest gain in three months, Friday’s tumble erased any and all elation. The Dow plummeted 2.5% (down 250 points) while the S&P fell 2.8% (30 points) to levels of 9,713 and 1,036, respectively. The media is surely pointing its finger at various data and comments by investors as the reason for the falls:

• CIT likely to file for pre-packaged bankruptcy after making deals with Icahn and Goldman Sachs. Icahn said it will likely supply a $1bn loan for bankruptcy financing while Goldman will keep open a credit line for potential court protection. Honestly, this news wasn’t a huge surprise. Even so, any ‘bankruptcy’ headlines will always unnerve investors, especially when related to financials.
• U. of Michigan Confidence dropped to 70.6 from 73.5 last month. Though skepticism of the recent rally is growing, it is important to emphasize that confidence is still well above the 50’s and 60’s readings we saw earlier in the year.
• Personal Spending fell 0.5% versus a gain of 1.4% the prior month. Keep in mind that ‘Cash for Clunkers’ undoubtedly boosted last month’s number; excluding Cash for Clunkers, the number actually picked up, albeit very slightly

To give my 2 cents on the above, while certainly not good news, it is nothing unexpected. As I mentioned on Thursday, profit-taking is going to be a big theme driving the market in the next two months and especially as year-end draws closer. Yesterday’s sell-off was indeed furthered by investors cashing out of positions after Thursday’s rally. Keep your eyes peeled for further signs of increased profit-taking and risk-aversion as these are common themes this time of year.