Stocks Dive on Payroll Bombshell
Stocks plummeted and investors rushed into Treasury bonds and gold Friday as a feeble July employment report triggered widespread fear that the economy is headed for a sustained slowdown.
The Dow Jones industrial average tumbled 147.70 points, or 1.5%, to 9,815.33, its lowest closing level since Nov. 28.
The technology-dominated Nasdaq composite index had its biggest one-day drop since Feb. 4, falling 44.74 points, or 2.5%, to 1,776.89 -- a level last seen nearly 12 months ago.
Stocks had slumped for much of July amid weaker-than-expected economic data, soaring oil prices and downbeat profit forecasts from a raft of companies. But the market perked up late last month as many Wall Street pros said the pessimism had been overdone.
That made the July employment report, which said the economy added a mere 32,000 net new jobs, even more of a bombshell for the market, said Chris Orndorff, head of equities at money manager Payden & Rygel in Los Angeles.
Like many other strategists, Orndorff had been expecting the job data to provide a “positive catalyst” for the market, sparking an August bounce after a poor July.
Instead, “What the numbers are telling us is that the economy is slowing,” he said. “If that’s the case, you’re not going to get the kind of earnings growth that’s priced into the market.”
Many Wall Street bulls continued to say Friday that concerns over the economy, and the stock market, were exaggerated. But they didn’t find a very receptive audience.
It didn’t help that crude oil prices remained near recent highs. Near-term oil futures in New York dipped to $43.95 a barrel, down 46 cents from Thursday’s record level.
Major stock indexes tried to rally several times early in the day, then gave up and fell sharply in the final two hours of trading, closing near their session lows.
Some investors poured cash into Treasury bonds, to lock in yields. If the economy is decelerating, it could take pressure off the Federal Reserve to continue raising interest rates.
The yield on the 10-year T-note slid from 4.40% on Thursday to 4.22%, the lowest since April 9. The two-year T-note yield sank to 2.38% from 2.61% on Thursday.
“You’re looking at a year that was supposed to be the big bear market for bonds,” said Jeffrey E. Gundlach, manager of the TCW Galileo Total Return Bond Fund in Los Angeles. “Amazingly, [long-term] bond yields are lower than they were at the start of the year,” he said.
The 10-year T-note yield began the year at 4.25%, fell in the winter on worries about the economy, then zoomed in the spring as growth accelerated and Federal Reserve officials began to warn they would be tightening credit. The yield peaked at 4.87% on June 14.
Despite the bearish July employment data, some analysts said investors should be wary about concluding that the outlook for the economy was deteriorating.
“We talk to a lot of corporations, and they aren’t in retreat mode,” said Robert Podorefsky, an interest-rate strategist at Bank of America in Boston.
“I would not want to make any long-term bets here” on lower bond yields, he said. “This economic downturn might be a head fake.”
In currency trading, however, worried investors pummeled the dollar. The euro’s value jumped to $1.228 from $1.206 on Thursday. The dollar’s weakness helped boost gold: Near-term gold futures in New York zoomed $7.50 to $399.80 an ounce.
For the stock market, Friday’s sell-off was harsh, but by some measures it was less so than the losses Thursday, when some investors apparently were selling in advance of what they feared would be a lousy employment report.
The Dow dropped 163.48 points, or 1.6%, on Thursday.
Also, falling stocks Thursday had outnumbered winners by 11 to 4 on the New York Stock Exchange. On Friday the ratio was about 3 to 2.
Utility stocks and real estate investment trust shares were among the day’s winners, as falling bond yields made the high dividend yields on those shares more attractive.
But for Nasdaq and smaller stocks in general, Friday’s decline was worse than the previous day’s. The Russell 2,000 index of smaller stocks slid 12.71 points, or 2.4%, to 519.65. It had dropped 1.9% on Thursday.
Overall, trading volume remained moderate.
For the week the Dow dropped 3.2%. It is down 6.1% year to date.
The Standard & Poor’s 500 index, which fell 16.73 points, or 1.6%, to 1,063.97 on Friday, declined 3.4% for the week and is down 4.3% this year.
The Nasdaq composite slumped 5.9% for the week and is off 11.3% this year.
With many stocks at their lowest prices since late last year, some market veterans said investors with a long-term time horizon should be looking to buy.
“Perhaps I’m a Pollyanna, but I truly believe the market is presenting people with an opportunity,” said Jason Trennert, chief investment strategist at market research firm ISI Group Inc. in New York.
With interest rates low and many companies flush with cash, this isn’t the kind of environment that normally precipitates a market plunge, he said.
But Trennert said oil prices were a wild card.
“If oil starts to break, I think the stock market can do a lot better,” he said. If oil was to rise above $50 a barrel, however, “I can’t sugarcoat that,” he said.
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Yields plunge
10-year Treasury note, weekly closes June 13, 2003: 3.11% Friday: 4.22%
Source: Bloomberg News
