Stock Market and Banking & Finance and Investing

U.S. stock market plunges after dismal jobs report

June 1, 2012

A dismal U.S. jobs report and other evidence of a global economic slowdown clobbered U.S. stocks Friday. The Dow Jones industrial average was down more than 280 points late in the trading day, leaving it in negative territory for the year.

The Dow Jones industrial average closed down 275 points, or 2.2 percent, at 12,118, its biggest decline since November. The Dow is down 0.8 percent for the year.

The S&P 500 index closed down 32 points, or 2.5 percent, at 1,278. The NASDAQ composite index closed down 80 points, or 2.8 percent, at 2,747.

Six stocks fell for every one that rose on the New York Stock Exchange. Trading volume was heavy at 4.58 billion shares.

American employers added just 69,000 jobs in May, the fewest in a year, and the unemployment rate increased to 8.2 percent from 8.1 percent. Economists had forecast a gain of 158,000 jobs.

The report, considered the most important economic indicator each month, also said that hiring in March and April was considerably weaker than originally thought.

"The big worry now is that this economic slowdown is widening and accelerating," said Sam Stovall, chief equity strategist at S&P Capital IQ, a market research firm.

The job picture remained dark elsewhere in the world. Unemployment in the 17 countries that use the euro currency stayed at a record-high 11 percent in April, and unemployment spiked to almost 25 percent in Spain.

There were also signs that growth in China, which helped sustain the global economy through the recession, is slowing significantly. China's manufacturing weakened in May, according to surveys released Friday.

Traders sold all types of risky investments and stampeded toward the safety of U.S. government bonds and gold. Bond prices rose sharply, pushing the yield on the benchmark 10-year U.S. Treasury note down to 1.44 percent, the lowest on record.

Gold rose $59 an ounce to $1,624. For much of the past three years, investors have bought gold for safety during a turbulent time for the world economy. That effect appeared to wear off this spring as the dollar strengthened against the faltering euro. Commodities like gold are often valued by dollars, so when the dollar rises, those commodities become more expensive.

May was the worst month for the stock market in two years by some measures. Investors' worries about Europe's debt crisis intensified as the month wore on. Greece's political future is uncertain, and it appears increasingly likely to exit the euro currency. That could rattle financial markets and make Greece's economy — already hobbled — even weaker.

Friday's jobs report drew traders' attention back to the weakening U.S. economy, said Todd Salamone, director of research for Schaeffer's Investment Research in Cincinnati.

"The weaker jobs report translates into anticipation of slower growth ahead and weaker corporate earnings, and that ratchets stock prices lower," Salamone said.

The record-low yield on the 10-year Treasury note reflected rapid buying by big traders with the biggest portfolios, including central banks, endowments and pension funds, said Ira Jersey, U.S. interest rate strategist at Credit Suisse. He said money managers were selling investments priced in euros and stashing their money in U.S. securities.

Stovall said that traders are waiting to see what governments and central banks might do to juice global economic activity. Otherwise, the losses would be even deeper, he said.

The Fed undertook programs in 2009 and 2010 to buy U.S. government bonds. The goal was to lower interest rates and help stock prices. The central bank so far has resisted a third round of purchases, known as quantitative easing.

Anticipation of bond-buying by the Fed "might put in a little bit of a floor to the market, but the overall economic picture is still bad," said Bob Gelfond, CEO of MQS Asset Management, a New York hedge fund.

The dollar weakened. The euro rose half a penny against the dollar to about $1.24. A day earlier, fears about Europe's finances had pushed the euro to a nearly two-year low against the dollar.

Gold spiked and the dollar fell partly because traders expect more intervention by the Federal Reserve, Gelfond said.

Bond-buying adds to the supply of money coursing through the economy and leads some investors to worry about future inflation, which would make the dollar less valuable. Traders buy gold as a hedge against inflation.

Geoffrey Yu, currency strategist at UBS in London, agreed that speculation about Fed action had sparked the dollar's sharp decline after the jobs report was released. But he said that knee-jerk reaction was brief, and the dollar stabilized as people recognized that the Fed will likely hold off on more action unless things deteriorate further.

Fewer than 20 of the 500 companies in the S&P index were higher for the day.

Homebuilder stocks fell the most, despite a report that construction spending rose for a second month in April. PulteGroup fell 11 percent, D.R. Horton and Lennar 9 percent. The three had the biggest declines of companies in the S&P 500.

Boeing, the biggest U.S. exporter, fell 3 percent, one of the biggest declines among the 30 companies that make up the Dow. Traders fear that the economic slowdown will hurt global demand for its airplanes and defense technologies.

A slower global economy would reduce demand for energy. The price of a barrel of oil fell about $3 to $83.21, extending a monthlong slide.

Stocks closed way down in Europe. Greece's benchmark stock index fell 4.4 percent, Germany's 3.4 percent and France's 2.2 percent.

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