By Kristina Peterson
U.S. stocks tumbled Friday as discouraging monthly jobs data
renewed concerns over the fragile state of the U.S. economic
recovery and sent investors scurrying to assets perceived as
safer.
The Dow Jones Industrial Average (DJI) fell 133 points to 10542
points and a surge in demand for Treasurys pushed the yield on the
10-year note (UST10Y) to its lowest level in more than a year.
The Nasdaq Composite (RIXF) slid 1.3% to 2264. The Standard
& Poor's 500-stock index (SPX) fell below its 200-day moving
average, tumbling 1.4% to 1110.
The report, which showed nonfarm payrolls fell by a
larger-than-expected 131,000 last month, added to a stream of
economic data over recent weeks that indicate the American recovery
continues to weaken, and stoked fears the country could still fall
back into a recession.
The economic recovery is "going to be like running on the beach
with boots on," said Stephen Wood, chief market strategist at
Russell Investments. "You're kind of stalled out on the jobs
front."
Compounding worries is that consumer spending, which makes up
70% of economic activity, could further erode in the face of
persistently high unemployment rates. And investors remain wary
about how the weak job numbers will influence the Federal Reserve's
decision at next week's meeting, at which some economists
anticipate it could alter its strategy for managing its
$1.1-trillion portfolio of mortgage-backed securities or take other
measures to spur the economy.
"The Fed will be focused like a laser beam on the jobs
situation," Wood said. "I don't think they'll pull the trigger just
yet, but if they do see a significant deterioration, they will be
well-rehearsed on their policy options."
Treasurys rallied as demand for safe-haven assets surged. The
10-year Treasury note (UST10Y) rose, pushing its yield down to
2.83%, hitting its lowest level since April 2009.
The dollar hit its 2010 low against the yen and weakened against
the euro. After piercing $1.33 to a three-month high, the euro was
trading recently around $1.3286, up from $1.3186 late Thursday in
New York. The U.S. Dollar Index (DXY), which tracks the U.S.
currency against a basket of six others, shed 0.6%.
Gold prices rose above the $1,200 psychological benchmark as
investors moved to the perceived safety of the metal. The weakening
U.S. dollar after the report is further helping the
dollar-denominated metal by making it less expensive for buyers
using other currencies. .
European markets lost earlier gains on encouraging earnings from
European banking and insurance groups. The Europe Stoxx 600 closed
down 1.1%, turning negative in the wake of the U.S. jobs
report.
On the U.S. exchanges, midday volume was light. Around 2.3
billion shares had traded hands in New York Stock Exchange
Composite volume after more than four hours of trading. Stocks tend
to move more dramatically when volume is light. Traders said there
were few incentives to stake out new positions ahead of the
weekend, especially in the wake of such disappointing data.
"We're two years into this recession, and we're not getting any
better -- we can't even add jobs," said Dave Rovelli, managing
director of equity trading at Canaccord Adams. "Companies are doing
well because they've slimmed down, but they're not hiring."
Nonfarm payrolls fell by 131,000 last month, more than the drop
of 60,000 economists had expected, the Labor Department said
Friday. Only 71,000 private-sector jobs were added last month. The
government also revised lower June's data to reflect a payrolls
drop of 221,000, more than the 125,000 decline previously
reported.
The jobless rate held steady at 9.5% in July, slightly better
than the 9.6% reading expected by economists. However, investors
noted that the unemployment rate was being artificially bolstered
by a surge of discouraged workers leaving the work force.
Among stocks in focus, AIG (AIG) rose 2.9% as the company's
insurance business generated an operating profit, though the
bailed-out insurance behemoth swung to a second-quarter loss after
taking a $3.3 billion write-down on the operations set to be sold
to MetLife (MET).
Kraft Foods (KFT) gained 2.4% after reporting a 13% jump in its
second-quarter profit as its new Cadbury business helped drive
sales in developing markets in Asia and Latin America. Earnings
topped Wall Street's expectations and Kraft affirmed its 2010
earnings outlook.