Ugly jobs data hammers U.S. blue chips
Dow tumbles to 5-month low Weak jobs data belts blue chips, techs also wobble
NEW YORK (CBS.MW) — The Dow Industrial Average tumbled Friday to its lowest close since early April after an unexpectedly large drop in nonfarm jobs, coupled with a jump in the unemployment rate, painted a grim picture of the labor market. Nonfarm payrolls fell 113,000 in August vs. the 42,000 that had been expected by economists polled by CBS MarketWatch.com. And the jobless rate shot up to 4.9 percent from July’s 4.5 percent and the expected 4.6 percent rate. That’s the highest level in more than four years and a full percentage point above the low set last November. and check economic calendar and forecasts. Bonds rallied on the jobs report and yields on Fed sensitive 2-year notes fell to historic lows as investors increased their expectations for additional rate cuts. “It’s psychology that matters and a jump of this kind in the unemployment rate causes damage,” remarked Joe Liro, equity strategist at Stone & McCarthy Research Associates. “The best outcome for the market would be a slow grind sideways through the pre-announcement period. Perhaps we can mount something positive after the Fed meeting in October, but the upcoming warnings season worries me,” Liro said. The Nasdaq’s losses were more modest compared with the Dow’s. The index, down four straight sessions, even managed a brief foray into the plus column as investors found some solace in news that Intel maintained its financial targets. The broad market saw advances in the gold, oil, natural gas and utility sectors. Dripping in red ink were shares of retail, biotech, financial, cyclical, drug and airline issues. Check market stats and latest sector performance. The Dow Jones Industrial Average ($INDU) fell 235 points, or 2.4 percent, to 9,606 after falling as many as 282 points earlier. The world’s benchmark stock index ended the holiday-shortened week down 3.4 percent. Topping the list of losers: Home Depot, Boeing, Alcoa, DuPont, AT&T, International Paper, General Motors, United Technologies and Wal-Mart. Moving higher: Hewlett-Packard, Eastman Kodak and Exxon Mobil, Dow stock Boeing (BA) dropped 7.5 percent to a fresh 52-week low after Morgan Stanley Dean Witter lowered its view on the stock to a “neutral” from “outperform,” saying that research is indicating an order upturn is several quarters away. And General Electric (GE) shed 2.1 percent. The company has officially named Jeffrey Immelt its new chairman and chief executive, succeeding Jack Welch, who is retiring after more than 20 years at the helm. The Nasdaq Composite ($COMPQ) dropped 18 points, or 1 percent, to 1,688, ending the week down 5.3 percent at its lowest close since April 4. The Nasdaq 100 Index ($NDX) fell 8 points, or 0.5 percent, to 1,354.22. While the Nasdaq held its 2001 lows, the Nasdaq 100 broke its intraday low of the year set on April 4 by about nine points before rebounding. “Breaking the spring lows of the averages before a reversal occurs would not necessarily be a sign of severe market weakness. Many intermediate term bottoms have been made shortly after the averages have made temporary breaks of prior lows,” observed Merrill Lynch’s Richard McCabe. “We feel that the levels on the averages are not the important signs. The level of improvement in the indicators is the thing to watch.” The Standard & Poor’s 500 Index ($SPX) surrendered 1.9 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks declined 1.8 percent. Volume came in at 1.4 billion on the NYSE and at 1.7 billion on the Nasdaq Stock Market. Market breadth was dismal, with decliners squashing advancers by 22 to 9 on the NYSE and by 2 to 1 on the Nasdaq. On the fund flow front, Trim Tabs estimated that all equity funds had outflows of $10.7 billion in the week ending Sept. 5 compared with outflows of $6.0 billion in the prior week. And equity funds that invest primarily in U.S. stocks had outflows of $8.7 billion compared with outflows of $5.0 billion the previous week. Finally, bond funds had inflows of $2.0 billion vs. inflows of $900 million during the prior week. Inside the jobs report Weakness in the payrolls numbers again came from the manufacturing sector as firms shaved 141,000 jobs, the most since July 1998. Meanwhile, July non-farm payrolls were upwardly revised to show a 13,000 gain from the previously reported decline of 42,000. Tony Crescenzi of Miller, Tabak feels the risk in this report is that the consumer — the last pillar of strength in the U.S. economy — might buckle in reaction to the spike in the jobless rate. “Compounding the psychological burdens that consumers are facing is the continued erosion of the stock market over the past few weeks,” Crescenzi said, adding that the Fed should cut rates between meetings to address the situation. But Liro feels that an inter-meeting rate cut would do more damage than good, as it would give the impression that the Fed is panicking. “The rate cuts already in place will begin to work. And going from 3.50 percent to 3.25 percent on the fed funds rate won’t make much of a difference.” Dan Seto, senior economist at Sumitomo Life Investment Co., said that while the rise in the unemployment rate is dominating the headlines, it’s important to establish which indicators are leading ones and which are lagging ones. He said when the Fed sits down to decide the direction of interest rates, it’ll take into consideration the fact that the jobless rate is a lagging number. The near-term economic risk, Seto said, is the impact of the number on consumer confidence. Seto notes that while the rise in the NAPM index earlier this week was encouraging, the market is still not getting signs that a clear bottom is in place for the economy. “Many other areas are still stuck in neutral.” Commented Ian Shepherdson, chief U.S. economist at High Frequency Economics: “A report like this was overdue: The recession of 1990 saw nine months — including seven straight — in which payrolls fell by more than 100,000. Friday’s data mark only the second 100,000-plus drop this time around. On the unemployment rate, the stability of the past few months made no sense at all and a correction was inevitable,” “This will doubtless shock the markets, and makes an October rate cut more likely. But it does not change the outlook for a near-term recovery at all. Falling employment/rising unemployment lag activity. Rising unemployment will depress consumers’ view of the current economy but tends not to affect expectations much, and that is what drives future spending. The real clues to the outlook for the economy are in the NAPM,” Shepherdson concluded. Tech action Chip stocks climbed on Intel’s (INTC) news that third-quarter revenue would be “slightly below the midpoint” of its target range of $6.2 billion to $6.8 billion. The Philly Semiconductor Index ($SOX) rose 0.5 percent in a day of choppy action. Intel CFO Andy Bryant said during the company’s mid-quarter conference call that while there’s still risk, he’s as “comfortable” as he can be with the third quarter following the strength seen in July and August. But Intel stressed that September remains critical for the quarter. Intel fell 0.8 percent after spending most of the session in positive territory, and rival Advanced Micro Devices (AMD) gained 0.9 percent. Motorola, which warned on Thursday, added 2.5 percent. SG Cowen said its fall tech conference provided additional data points indicating the chip equipment industry has reached a level of stabilization, including reductions in cancellations. Among the equipment makers, Applied Materials (AMAT) added 0.2 percent and Teradyne rose 1.9 percent. Net stocks slumped under the weight of AOL Time Warner’s 8-percent decline. Lehman Bothers’ Holly Becker lowered her 2002 revenue and EBITA (earnings before interest, depreciation, taxes and amortization) estimates on AOL. She believes the stock’s (AOL) near-term performance will be held back by softness in the advertising market and a resulting lack of earnings visibility. Still, Becker said she views AOL as the premier media company and said it remains the most attractive long-term holding in the group. And EBay (EBAY) slid 3.9 percent after the company said Thursday that it plans to offer up to $1 billion of its common stock to the public. In the hardware segment, Hewlett-Packard (HWP) eked out a gain after eight straight sessions of losses. The company, which announced it was purchasing Compaq (CPQ) earlier in the week, said late Thursday that it would pay as much as $882 million in cash and stock to buy the remaining outstanding shares of Netherlands-based Indigo it doesn’t already own. H-P added 2.1 percent, Compaq 2.3 percent and Dell 0.2 percent. Among the networkers, Cisco Systems (CSCO) slipped 0.3 percent. Merrill Lynch said it sees Cisco’s shares capped in the very near term by lowered expectations for capital and optical spending and excess capacity. But Merrill feels Cisco’s competitive position should “reward patient investors.” Nextel Communications (NXTL) gained 5.6 percent after reaffirming its third-quarter outlook. The telecom outfit said domestic subscriber additions and operating cash flow for the quarter are currently on track to exceed second-quarter levels. Among its peers, Verizon added 0.7 percent. Broad market moves Airline issues ($XAL) receded for a fourth straight session with AMR’s warning adding to the sector’s woes. The parent of American Airlines said it now expects a third-quarter loss that’s “considerably larger” vs. the second quarter and said a “significant” loss is in the cards for the fourth quarter as well. AMR declined 3.2 percent. Chemical issues ($CEX) sputtered, though Dow Chemical (DOW) gave up only a little ground, slipping 0.7 percent after an upgrade from UBS Warburg to a “strong buy” from “hold.” The firm said Dow Chemical is expected to benefit from earnings visibility within a couple of quarters, driven by cost cutting initiatives and the ending of a vicious inventory correction. In a broader call, Warburg advised investors to begin accumulating chemical stocks with a weighted position. Treasury focus Treasurys rallied, adding to already lofty gains on Thursday. The 10-year Treasury note rallied 15/32 to yield ($TNX) 4.81 percent while the 30-year government bond put on 15/32 to yield ($TYX) 5.385 percent In the currency sector, the dollar fell when the morning data hit the tape after registering modest gains earlier on. The greenback shaved 0.6 percent to 120.11 yen while the euro ascended 1.1 percent to 90.52 cents. Japan’s economy contracted in the fiscal first quarter: The government reported a 0.8-percent decrease in GDP — the first shrinkage since the July-September quarter of 2000. While the GDP number matched economists’ predictions, stocks and the yen faltered on the news. Julie Rannazzisi is markets editor for CBS.MarketWatch.com in New York. |
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