Thread: Stocks Plunge, Bonds Up on Weak Job Data

Stocks Plunge, Bonds Up on Weak Job Data
Friday September 7, 1:38 pm ET
By Tim Paradis, AP Business Writer
Stocks Fall Sharply, Bond Prices Soar Following Weak Employment Report


NEW YORK (AP) -- Stocks fell sharply Friday but pared some of their losses and bonds surged higher after the government reported payrolls in August fell for the first time in four years rather than rising as had been expected. The Dow Jones industrial average fell more than 160 points.


Investors were unpleasantly surprised by the Labor Department's report that payrolls fell by 4,000 in August, the first decline since August 2003. The unemployment rate held steady at 4.6 percent as expected.

Wall Street has been awaiting the report as it tries to determine how well the economy is holding up under the weight of a faltering housing market, a rise in mortgage defaults and tightening availability of credit. While the report is backward looking and not predictive, investors regard it as an important reading of the economy's health.

"This certainly cements the case for a Fed action at the next meeting. The debate has really become about whether it will be 25 or 50 basis points," said Zach Pandl, economist at Lehman Brothers Holdings Inc., referring to whether the central bank would reduce rates by a quarter point or a half percentage point. He expects the Fed will reduce rates by 25 basis points when it meets Sept. 18.

In early afternoon trading, the Dow fell 162.34, or 1.21 percent, to 13,201.01. The blue chip index had been down as much as 241 points.

Broader stock indicators also skidded but came off their lows. The Standard & Poor's 500 index fell 14.94, or 1.01 percent, to 1,463.61, and the Nasdaq composite index fell 39.53, or 1.51 percent, to 2,574.79.

Bonds, meanwhile, soared following the jobs report as investors sought safety. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, skidded to 4.39 percent from 4.51 percent late Thursday.

The dollar fell sharply following the report and as the likelihood of an interest rate cut appeared to increase. Dollar-based assets would earn less interest if the Fed were to cut rates. In addition, gold prices rose sharply because some investors would be expected to abandon a weakening dollar and move into gold if the central bank cuts rates.

"This is just the expected response," said Pandl, referring to Wall Street's reaction to the jobs report. "The markets are repricing for lower growth and expectations of Fed cuts."

While the employment report clearly unnerved an already jittery Wall Street, some investors had been looking for a weak showing, arguing that a drop in employment could offer adequate reason for the Federal Reserve to lower short-term interest rates. But the employment report might have signaled too much weakness even for those pulling for a rate cut.

The central bank has left its fed funds rate unchanged for more than a year as it has sought to hold down inflation. But recent upheavals in financial markets have stirred concerns of a slowing economy and led some investors to expect a rate cut.

Consumers who feel confident in their ability to continue to earn are likely to keep spending, investors reason, and consumer spending is responsible for about two-thirds of U.S. economic activity.

"It is a pretty solid data point that gives people real cause for concern," said James Sonneborn, wealth manager at RegentAtlantic Capital LLC, noting that he generally doesn't like to place too much emphasis on a single economic reading.

"It certainly gives the Fed cover to cut rates and the rationale," he said, noting that the central bank has sounded fewer cautionary notes recently about inflation, its primary concern for the past year. Still, Sonneborn doesn't expect the Fed will cut rates before its meeting on the 18th.

"They never want to show a panic. You might get a change in the commentary or the tone when the Fed president's speak publicly. That might be their opportunity to verbally guide people toward what they're thinking."

Several regional Fed presidents are scheduled to speak next week.

Comments from one former Fed official -- Alan Greenspan -- perhaps added to Wall Street's unease Friday. The Wall Street Journal reported the former Fed chairman told a group of economists in Washington Thursday that the recent market turmoil is similar to that of 1987, when the Black Monday crash occurred, and of 1998, when the giant hedge fund Long-Term Capital Management nearly collapsed. Greenspan's comments come a month ahead of the 20th anniversary of the stock market's crash on Oct. 19, 1987.

Some corporate news added to Wall Street's unease Friday. Harley-Davidson Inc. said its full-year earnings will come in below those of last year amid what it described as a "difficult time for the U.S. consumer." The motorcycle maker said it anticipates 2007 earnings will slip 4 percent to 6 percent.

Harley fell $4.67, or 8.6 percent, to $49.42.

Light, sweet crude fell 13 cents to $76.17 per barrel on the New York Mercantile Exchange.

Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 783.1 million shares.

The Russell 2000 index of smaller companies fell 14.14, or 1.78 percent, to 778.78.

The jobs report prompted broader selling in markets overseas. Britain's FTSE 100 closed down 1.93 percent, Germany's DAX index fell 2.43 percent, and France's CAC-40 fell 2.63 percent.

In Asia, Japan's Nikkei stock average closed down 0.83 percent. Hong Kong's Hang Seng Index fell 0.28 percent, while the often-volatile Shanghai Composite Index fell 2.16 percent.

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com


http://biz.yahoo.com/ap/070907/wall_street.html?.v=24

Yet,we need more illegals and imported employees.