Mixed Employment Data Prompt Wall St. Sell-Off
A mixed employment report sent the stock market tumbling Friday as investors, fearful about the economy’s direction, unloaded technology shares and retreated to the energy and health-care sectors.
Analysts said the sell-off reflected Wall Street’s worries that the January employment numbers were not weak enough to persuade the Federal Reserve to cut interest rates again before its scheduled meeting in March.
The Dow Jones industrial average fell 119.53 points, or 1.1%, to 10,864.10. The benchmark indicator briefly poked its head above the 11,000 mark Friday morning but quickly retreated as investors digested the employment report. For the week, the Dow gained 1.9%.
The tech-dominated Nasdaq composite index slid 122.29 points, or 4.4%, to 2,660.50. Nasdaq was off 4.3% for the week--its first weekly decline in three weeks.
Nasdaq is now up 7.7% for the year, having given back almost half the eye-popping 12.2% gain it racked up in January.
The broader Standard & Poor’s 500 index lost 24 points, or 1.8%, to close at 1,349.47, ending the week off 0.4%.
The downturn came on light volume on both the New York Stock Exchange and the Nasdaq Stock Market. Still, losers beat winners on both markets--by 6 to 5 on the NYSE and 12 to 7 on Nasdaq.
Many investors have been buying stocks in anticipation of additional interest rate cuts, and Friday’s sell-off demonstrated their concerns about the Fed’s ability to stimulate the economy further.
The market opened to news that U.S. unemployment had climbed to 4.2% last month, reflecting a slowdown in economic growth that forced thousands of layoffs in autos and other manufacturing industries. Yet the number of net new jobs created in January was 268,000, surprisingly high, as service sectors of the economy continued to expand.
Analysts said the report, while indicating some continuing weakness, probably would not be troublesome enough to provide a catalyst for a February rate cut by the Fed.
The Fed cut its key short-term interest rate twice in January, but its next meeting isn’t until the end of March. Most analysts now doubt the central bank will cut rates before then, unless economic reports are particularly disappointing.
The Treasury bond market Friday reflected new caution about interest rates. Yields on bonds rose across the board. The one-year T-bill yield ended at 4.67%, up from 4.57% on Thursday. The five-year T-note ended at 4.84%, up from 4.75%.
Tech shares accounted for much of Friday’s market decline. “The fundamentals that are underlying the technology industry are pretty bleak, reading the fourth-quarter tea leaves,” said Jere Estes, chief investment officer at Investment Counsellors of Bryn Mawr, Pa.
Though the tech sector could be helped if the economy is in fact stronger than believed, valuations of the stocks remain high, and many tech investors had been counting on lower interest rates to back up those valuations.
Computer networking giant Cisco Systems, which is to report its earnings Tuesday, fell $2.75 to $35.50. Chip maker Intel dropped $2.13 to $35.69, and JDS Uniphase lost $5.81 to $50.
The semiconductor sector was battered after National Semiconductor became the latest major chip company to warn that quarterly results will lag behind forecasts as customers cut back on capital spending and work off excess inventories.
National Semi tumbled $2.56 to $24.75, while Silicon Storage Technology--which released disappointing earnings Thursday--lost $1.50 to $13.06. The Philadelphia semiconductor index slid 5.5%.
IBM lost $3.78 to $110.27, and fellow computer maker Hewlett-Packard slipped $1.11 to $35.75. Microsoft dropped $1.56 to $60.81. All three weighed on the blue-chip Dow.
The Dow also was pulled lower by declines in banker J.P. Morgan Chase, down $1.21 at $54.64, and 3M, off $2.82 at $108.73.
What buying there was this week was focused on pharmaceutical and consumer goods stocks--considered safer bets in an economic slowdown.
Indeed, Friday’s few bright spots were primarily non-technology issues. Energy stocks moved higher, led by Enron, up $1.19 to $79.98, and Schlumberger, which rose $1.49 to $77. Oil prices jumped $1.37 to $31.19 a barrel on forecasts of cold weather in the United States. Crude’s recent upturn has pushed prices back to the levels blamed for slowing U.S. economic growth last year.
Health-care stocks also advanced. Drug company Johnson & Johnson gained $1.23 to $95.10, while health-care provider Aetna climbed $1.08 to $38.58.
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Nasdaq Gives Back
With Friday’s loss, Nasdaq is up 7.7% for the year, having given back some of its January gain of 12.2%.
Friday: 2,660.50
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Source: Bloomberg News
