U.S. Stocks Slump After Disappointing Jobs Report -- FEC

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Date Posted: 04:53:08 07/07/12 Sat
Author: Ringo Saturday report
Subject:

U.S. Stocks Slump After Disappointing Jobs Report

U.S. Stocks Slump After Disappointing Jobs Report
07/07/2012 6:40AM

By Kaitlyn Kiernan and Jonathan Cheng

U.S. stocks fell sharply Friday to cap a holiday-shortened week marred by weak readings on the U.S. economy.

The Dow Jones Industrial Average finished Friday off 124.20 points, or 0.96%, to 12772.47, as investors responded to a third consecutive month of employment data that were worse than expectations.

Commodities markets suffered another day of big declines amid signs that one of the world's most reliable growth engines, the U.S., may be succumbing to a bout of slowness. The Labor Department reported that the U.S. saw just 80,000 new jobs created in June, below expectations for 100,000.

"There's little doubt that the U.S. economy is in a soft patch," said Brad Sorensen, director of market and sector analysis at Charles Schwab. "Everything is lining up to confirm that while we're not necessarily in for another recession, we're going to get this kind of slow growth that doesn't make anybody happy."

In response, crude oil lost 3.2% and copper declined 2.5%. Investors fled to perceived safe-haven assets like Treasurys, which saw the yield on the benchmark 10-year note sink to 1.54%.

The Standard & Poor's 500-stock index gave up 12.90 points, or 0.94%, to 1354.68. The Nasdaq Composite eased 38.79 points, or 1.3%, to 2937.33, but booked its fifth straight week of gains.

After a strong three-month start to the year for U.S. stocks, the Dow tumbled 6.2% in May amid a flurry of worries about the European debt situation. Last month's summit of European nations, which saw the Continent's leaders hammer out a preliminary agreement to nearer-term measures designed to help Spain and Italy, helped stocks rebound. But by Friday, Spain's government borrowing yields had come back to the 7% level they were hovering around before the summit.

Leading the fall Friday were stocks from the material and industrial sectors sensitive to global growth, with Caterpillar and Alcoa two of the worst performers among Dow components.

The technology sector slipped the most out of the S&P 500's 10 sectors. Eight of the index's top decliners were software companies and those tied to cloud-computing technology.

Teradata, Citrix Systems, F5 Networks, Red Hat, Autodesk, EMC, JDS Uniphase and Salesforce.com each fell by 4.5% or more. The fall came as one data-integration software company, Informatica, offered a soft revenue outlook. News reports about a piece of "malware," or malicious software, that some feared could affect computer networks Monday also may have contributed to declines by tech shares.

The Labor Department's monthly employment report spurred the bulk of declines. The report showed nonfarm payroll growth improved by 80,000 in June from an upwardly revised reading of 77,000 in May, falling short of the 100,000 jobs that economists had expected. The unemployment rate stood pat at 8.2%, in line with expectations.

"The jobs report disappointed everyone. If you look deeper you can see some rays of hope, but the headline numbers were bad, and the market took it pretty poorly," said Richard Sichel, chief investment officer at Philadelphia Trust Co.

The soft reading comes on the heels of similarly disappointing reports on the U.S. manufacturing and services sectors, and caught some economists off guard. On Thursday, many of them had nudged their predictions for Friday's report modestly higher, following a surprisingly strong report on private-sector payrolls.

"The report was poor enough to disappoint, but not terrible enough to send stocks higher on hope the Fed would immediately come running in," said Mr. Sichel. "But it does keep the Fed watching closely and keeps the chance for future action alive."

Gold futures finished 1.9% lower to $1,578.40 an ounce. The U.S. dollar moved higher against the euro, which traded at $1.2290, but lost ground against the yen.

The U.S. jobs report pushed already weak European stock markets even lower, coming in the wake of further signs of trouble in Spain and Italy. The Stoxx Europe 600 finished with a loss of 1%, closing at the day's low.

In addition, International Monetary Fund head Christine Lagarde said the IMF's forecast on global economic growth will be cut next month.

Spain's IBEX-35 index slid 3.1%, after slumping 3% in the previous session. The yield on benchmark 10-year Spanish bonds rose to just under 7%, the highest level since before the European Union summit at the end of last week.

"The big move up that we had last week was partly because of that European dinner party and summit, and today, you can see that nothing has really occurred--Spain's 10-year yield is back to 7%, and [German Chancellor Angela] Merkel is pushing back on shared provisions for any bonds," said Keith Bliss, senior vice president at Cuttone & Co.

Italy's FTSE MIB fell 2.5%, adding to Thursday's 2% slide, after the government approved EUR4.5 billion ($5.58 billion) in spending cuts for 2012 in an effort to shore up the country's finances.

Before the U.S. jobs report, Asian markets mostly fell on concerns over slowing economic growth, although China's Shanghai Composite rallied 1% after the country's central bank lowered interest rates following Thursday's market close.

In corporate news, Informatica tumbled nearly 28% after providing a second-quarter earnings and revenue outlook that was below analyst forecasts. The company also said it was adding $100 million to its stock-buyback program.

Deutsche Bank shares trading on American exchanges lost 5.1% on news German financial regulators were investigating the bank in relation to a probe of benchmark borrowing rates that has already ensnared Barclays PLC.

Xyratex rose 6% after the data-storage technology company reported second-quarter earnings that exceeded expectations, and provided an upbeat earnings outlook for the third quarter.

Seagate Technology slipped 0.5% after the hard-disk-drive company provided a fiscal fourth-quarter revenue outlook that was below analyst projections, citing disappointing market-share growth and a supplier quality issue.

Japan's ABC-MART said it agreed to buy LaCrosse Footwear for about $138 million. The $20-per-share bid represents an 82% premium to Thursday's closing price. LaCrosse shares surged 81%.

Write to Kaitlyn Kiernan at kaitlyn.kiernan@dowjones.com

(END) Dow Jones Newswires

July 06, 2012 16:40 ET (20:40 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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