Stocks slammed on jobs report
Dow, Nasdaq and S&P all tank after weak employment number raises worries about the economy; bond prices surge; dollar plummets.
NEW YORK (CNNMoney.com) -- Stocks slumped Friday after a surprise drop in August payrolls raised worries that the problems in the housing and financial markets are spreading to the rest of the economy.
Treasury prices jumped as investors sought safety, while the dollar plunged. Gold prices jumped as well. Oil prices rose.
The Dow Jones industrial average (down 249.97 to 13,113.38, Charts) lost nearly 250 points, or around 1.9 percent. The broader S&P 500 (down 25.00 to 1,453.55, Charts) index lost 1.7 percent. The tech-fueled Nasdaq Composite (down 48.62 to 2,565.70, Charts) retreated 1.9 percent.
For the week, the Dow lost around 1.8 percent, the S&P 500 eased around 1.4 percent and the Nasdaq gave up 1.2 percent.
Next week could start off on a rough note too. After the close of trade, Countrywide Financial (Charts, Fortune 500), the poster child for the subprime mortgage mess, said it will cut between 10,000 and 12,000 jobs, or 20 percent of its work force, over the next three months.
Employers reported that payrolls fell by 4,000 in August, when Wall Street economists were expecting payrolls to grow by 110,000, according to Briefing.com estimates. It was the first drop in monthly payrolls since 2003. Additionally, June and July job growth figures were revised lower.
"The report was pretty bad," said Joshua Shapiro, chief economist at Maria Fiorini Ramirez Inc. "We knew it would be soft, but not this soft."
The unemployment rate, generated by a separate survey, held steady at 4.6 percent, as expected.
The surprisingly weak report seemed to confirm bets that the Federal Reserve will cut the fed funds rate, a key short-term interest rate, when it meets Sept. 18.
Shapiro said that a rate cut is "pretty much a done deal at this time," with the question as to whether the central bankers cut by 25 or 50 basis points and how strongly they word the statement. There are 100 basis points in one percentage point.
The fed funds rate, which impacts consumer loans, has stood at 5.25 percent since June 2006, with the central bank holding pat amid a slower-growing economy and still-strong inflationary pressures.
However, the recent turmoil in financial markets has not gone unnoticed and in mid-August, the Fed cut the largely symbolic discount rate, which impacts bank loans. The Fed has also joined banks around the world in injecting billions into the banking system so as to keep liquidity flowing.
Whether Ben Bernanke and the other bankers will cut the fed funds rate at the next meeting - and by how much - has been in debate over the last few weeks as investors mulled the credit crisis versus signs of a still-strong economy.
The jobs report made it pretty clear that the economy is not quite as strong as had been hoped and that the central bank will need to cut, analysts said.
"I think the market had already priced in a rate cute," said Ryan Atkinson, vice president and market analyst at Balestra Capital. "What you're seeing today is a knee-jerk reaction on worries that the Fed is already behind the curve."
Separately, former Fed Chairman Alan Greenspan, speaking at an economics conference, said that the current market turmoil is similar to what happened in 1998, 1987 and other times in history when there were economic bubbles. (Full story).
Treasury prices surged in a classic "flight to quality" move that also signals that Wall Street expects the Fed to cut interest rates. The rally lowered the yield on the 10-year note to 4.37 percent from 4.50 percent late Thursday. Bond prices and yields move in opposite directions.
Gold prices also jumped in response to the report. COMEX gold for December delivery rose $5.10 to settle at $709.70 an ounce.
In currency trading, the dollar slumped versus the euro and the yen.
U.S. light crude oil for October delivery rose 58 cents to $76.88 a barrel on the New York Mercantile Exchange.
Stock declines were broad based, with 29 out of 30 Dow components tumbling, led by Alcoa (down $1.63 to $34.87, Charts, Fortune 500), American Express (down $1.65 to $57.75, Charts, Fortune 500), Caterpillar (down $2.31 to $73.44, Charts, Fortune 500), General Motors (down $1.50 to $29.55, Charts, Fortune 500), Hewlett-Packard (down $1.34 to $48.85, Charts, Fortune 500), Home Depot (down $1.01 to $34.21, Charts, Fortune 500), Honeywell (down $1.95 to $54.71, Charts, Fortune 500) and Intel (down $0.68 to $25.47, Charts, Fortune 500).
Among other movers, shares of Harley-Davidson (down $5.00 to $49.09, Charts, Fortune 500) slumped 9.2 percent in active New York Stock Exchange trading after the motorcycle maker cut its outlook for shipments and sales through the rest of the year, due to a slowdown in consumer spending.
Office Depot (down $2.14 to $19.80, Charts, Fortune 500) slumped 10 percent after the company's CEO said at a conference late Thursday that third- and fourth-quarter earnings will fall from a year earlier. The CEO said that the likely shortfall was due to small businesses cutting back on their spending as a result of the collapse of the housing market.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than 3 to 1 on volume of 1.46 billion shares. On the Nasdaq, decliners topped advancers by more than 3 to 1 as 1.89 billion shares changed hands.