Just when investors had grown despondent, indices snapped their four-day losing streak on Friday, as the biggest employment addition in five years lifted markets into the green.
Both the Dow Jones Industrial Average (DJIA) and Standard & Poor climbed 0.4% to settle at 12,638.74 and 1,340.20, respectively. The Nasdaq was up 0.5% and finished the day at 2,827.56. The fear-gauge CBOE Volatility Index rose above 18. On the New York Stock Exchange trading volumes were 4.4 billion shares and for every couple of shares that rose, one was on the declining side. However, due to the heavy beating that the markets suffered on the previous four days of the week, the three major indices ended the week down more than a percent. The Dow was down 1.3%, the S&P 500 dropped 1.7% and the Nasdaq shed 1.6%.
The big news for the economy on Friday was the job data as employment data from the government came in significantly better-than-expected. The private sector negated inflationary concerns to record its biggest hiring spree since February 2006, creating 268,000 new jobs. According to The Bureau of Labor Statistics overall non-farm payrolls created 244,000 jobs in April, coming in well ahead of economists’ expectations of an addition of 186,000. This also marked the largest increase in 11 months. On the flip side, the unemployment rate jumped to 9% in April from 8.8% in March, reversing the rapid decline of the preceding months. The economy has now added jobs for seven consecutive months, but the additions have not been large enough to bring cheer to 13.7 million unemployed citizens.
On most occasions, employment data from Automatic Data Processing refuses to show results similar to the report released by the Labor department. This time was no exception, but the Labor department report brought cheer to investors after Automatic Data Processing (ADP) led to concerns about the employment situation. According to the ADP report, the economy could only accommodate an additional 179,000 private sector jobs last month, versus a gain of 200,000 jobs expected by economists. Right on the following day, ahead of the monthly labor market report, initial claims data from the government had adversely affected the markets after claims rose to their highest level in eight months. Federal Reserve Chairman Ben Bernanke had earlier emphasized that the employment situation poses a bigger threat than inflationary pressures. Given such negativity prevailing in the minds of the investors about the job market, this report surely brings a glimmer of hope to investors.
Earlier, we said that as we near the fag-end of the earnings season, it will be the economic data which determines market movements. Obviously, positive reports will help push the benchmarks higher and vice versa. Friday’s events clearly illustrate this point, as with no major corporate results scheduled for release, the limelight was completely on the jobs data.
The better-than-expected payroll data also helped in easing a sell-off in commodities. Since traders had earlier lost confidence, they chose to take the exit route and locked in profits. Consequently, materials had dropped significant points during the four-day losing streak, but finally moved up as hopes of an economic recovery resurfaced. Materials and the Industrials moved higher and shares like Alcoa, Inc. (NYSE:AA), Caterpillar Inc. (NYSE:CAT), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Boeing Co. (NYSE:BA) gained 0.8%, 0.9%, 0.6% and 1.1%, respectively. Meanwhile, US light crude fell below $98 per barrel.
On the earnings side, Kraft Foods Inc. (NYSE:KFT), Visa, Inc. (NYSE:V) and Fluor Corporation (NYSE:FLR) reported favorable quarterly results and their shares surged 2.1%, 0.9% and 7.9%, respectively.
However, the gains in the markets were somewhat limited due to euro-zone concerns. A news article published in Germany’s Spiegel Online reported Greece has been considering exiting the euro zone and will not share the single currency. But later, European Officials and Greek officials denied any such plans. A senior Greek government official and a spokesman for Jean-Claude Juncker, head of the group of euro zone finance ministers, said the report was wrong. The Greek official said any such plan is absolutely “absurd”.
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