U.S. stocks slumped roughly one percent on Friday after a disappointing jobs report raised fresh questions about the strength of the nation’s economic recovery. The Labor Department reported that the economy added 18,000 jobs in June, far fewer than the six-figure gain analysts had expected, and the unemployment rate edged up to 9.2 percent.
“This stinks,” says Robert Pavlik, chief market strategist at Banyan Partners. “It’s a disappointment all around. It’s a disappointment for the Street because we needed to see some job creation to keep the recovery going.”
With less than an hour left in trading, the Dow Jones Industrial Average had dropped 100 points (0.78 percent) to 12619.93, while the Nasdaq stock index was off 23 points (0.82 percent) and the Standard & Poor’s 500-stock index had fallen 13 points (0.98 percent). The losses, if not reversed by the end of trading, would snap a streak of eight straight gains for the S&P, a run that had pushed the index close to its 2011 high, reached in late April, and left stocks less than one percent away from a three-year high.
“It’s all about the jobs today,” says Steven Goldman, senior market strategist at Weeden & Co. “In all aspects, the number was poor.”
Investors had been hoping that the economic “soft patch” of recent weeks was over, or at least nearing an end. “We need to look at why the business growth is not occurring,” says Frank Davis, director of sales and trading at LEK Securities. “We’ve been making great efforts now for 36 months and, over that period of time, the improvements we’re hoping for are not there yet.”
Friday’s weaker-than-expected jobs number contrasts with much more upbeat figures released Thursday, including a report from payroll-processing company ADP that private-sector employers added 157,000 jobs in June, far more than expected. Also on Thursday, the Labor Department reported that initial jobless claims fell by 14,000 to 418,000 for the week ended July 2.
Investors may not dwell for long on the disappointing jobs data though, as earnings season is set to start next week, with Alcoa due to report its second-quarter results after the markets close on Monday. “It completely is going to shift the focus,” says Davis.
While many analysts expect earnings growth to have slowed in recent months as companies dealt with higher commodity prices and broader economic uncertainties, healthier-than-expected earnings forecasts could help Wall Street forget the jobs disappointment.
“There’s still some optimism left in this market regarding next week’s beginning of earnings season,” says Pavlik. “If we get some relatively good earnings news and some relatively strong forecasts, the market could recover fairly quickly.”
Stock market analysts surveyed by Thomson Reuters are forecasting double-digit earnings gains for S&P 500 companies, after 16.5 percent gains in the first quarter, but those forecasts have slipped since April as the outlook for the financial and consumer discretionary sectors has eroded. Economists have also been ratcheting down their forecasts for GDP growth, given the weak jobs data and other negative economic news.
More about jobs and the stock market from The Fiscal Times:Adapt or Die – Some Jobs Are Never Coming Back
Recovery in Danger as Consumers Tighten their Belts
The Selloff in Stocks is Just Getting Started