Stocks suffered their first serious setback of the new year Friday and government bond prices soared as the government’s anemic jobs report caught investors by surprise.
The widely watched Dow Jones industrial average sank more than 133 points -- its steepest one-day slide since Oct. 22 -- after the Labor Department said a net 1,000 nonfarm jobs were created in December. Economists had forecast that 150,000 positions were generated last month.
“The employment number was much lower than anyone had anticipated,” said Jay Wong, portfolio manager at Los Angeles-based money management firm Payden & Rygel. “It just shows that the economic situation in the U.S. is not as rosy as some people were thinking.”
The yield on the benchmark 10-year Treasury note -- which moves in the opposite direction of its price -- plunged to 4.08% from its close of 4.25% on Thursday as bond traders took the news to mean that interest rate hikes by the Federal Reserve may be further off than previously thought. It was the biggest one-day drop in more than two years for the 10-year T-note yield.
On Wall Street, the Dow slid 133.55 points, or 1.3%, to 10,458.89, though other stock benchmarks held up better. The broader Standard & Poor’s 500 index lost 10.06 points, or 0.9%, to 1,121.86. The technology-heavy Nasdaq composite eased 13.33 points, or 0.6%, to 2,086.92, its first down day since Dec. 31.
Declining and advancing stocks were about even on the New York Stock Exchange, while losers held a 3-2 edge on Nasdaq. Volume was heavy.
Some strategists gave the market credit for holding up as well as it did under the circumstances.
“Given the magnitude of the economic disappointment, the relative firmness of the stock market was a testament to the underlying confidence investors have in the U.S. for 2004,” said Kevin Marder, strategist at Ladenburg Thalmann Asset Management in Los Angeles.
Marder said he remained “extremely bullish,” noting that investors this year have been favoring companies that benefit from business spending. Despite slim declines Friday, the Nasdaq telecom index is up 7.6% year to date, and the SOX index of semiconductor stocks is up 6.9%.
“Capital spending has been one of the missing links in the economic recovery,” Marder said. “What the market seems to be telling us is that corporations are getting ready to open their purse strings.”
Even after Friday’s losses, the Dow rose 0.5% in the market’s first full week of trading in 2004, the S&P; 500 gained 1.2% and Nasdaq climbed 4%. Last year, the indexes surged 25.3%, 26.4% and 50%, respectively.
Wong said the market was ripe for profit taking after its recent gains, cautioning that many high-octane growth stocks have gotten expensive.
In the Treasury market, meanwhile, yields fell to three-month lows as traders priced in the likelihood of what Marder called a “friendlier Fed.” Among shorter durations, the two-year yield fell to 1.66% from 1.83% on Thursday.
In currency trading, reaction to the jobs data added to the dollar’s woes against the euro. The European currency strengthened to $1.284 against the greenback, while the dollar rose to 106.37 Japanese yen.
In commodity trading in New York, crude oil futures surged to $34.31, a level not seen since March, from $33.98 on Thursday.
In other highlights:
* Oil service stocks gained after Royal Dutch/Shell cut its reserves estimate, a sign it would have to step up its drilling. BJ Services rose $1.60 to $37.77, and Halliburton added $1.02 to $28.
* Ford Motor slumped 54 cents to $16.56 after warning that profit for fiscal 2004 might fall shy of analyst estimates.
* Alcoa slipped $1.41 to $37.25 despite beating fourth-quarter profit expectations.
Market Roundup, C4-5