Government jobs data came in at its worst in 11 months, sending benchmarks on a downward spiral on Friday. With zero jobs being added, the markets also suffered their sixth weekly decline in seven weeks, and recessionary fears crept back to dampen sentiment. Additionally, banking giants were dealt a blow after a lawsuit filed against the big names accused them of unfair mortgage practices.
The Dow Jones Industrial Average (DJIA) lost 253 points or 2.2% to settle at 11,240.26. The Standard & Poor 500 (S&P 500) was down 2.5% and finished the day at 1,173.97. The Nasdaq Composite Index declined 2.6% and closed the day at 2,480.33. The fear-gauge CBOE Volatility Index (VIX) jumped a good 5.9%, reflecting investor concerns. On the New York Stock Exchange, the American Stock Exchange and Nasdaq, consolidated volumes were soft at 6.88 billion shares, down from last year’s daily average of 8.47 billion. On the NYSE, for every six stocks that moved down, one stock was on the gaining side. The indices closed in the red for the sixth time in seven weeks. However, gains made earlier this week helped to partially offset the losses and the Dow and S&P 500 were down 0.4% and 0.2%, respectively, while Nasdaq managed negligible gains of 0.002% for the week.
Investors were anxiously awaiting the government non-farm payroll data and were hoping that a positive report would ward off recessionary fears. However, the U.S. Bureau of Labor Statistics reported no new job additions in the US in August. There were no additions to nonfarm payroll employment, while expectations had earlier mounted for an addition of 75, 000. The unemployment rate was also unchanged at 9.1%. According to the report, “Employment in most major industries changed little over the month. Health care continued to add jobs, and a decline in information employment reflected a strike. Government employment continued to trend down, despite the return of workers from a partial government shutdown in Minnesota”.
This disappointing report comes after the Commerce Department and payroll-processor Automatic Data Processing’s (ADP) job data had sparked some optimism among investors. ADP had reported that the economy added an additional 91,000 jobs in the private sector driven primarily by the service sector and small businesses. A day later, the Commerce Department struck a positive chord as it reported a fall in initial claims. According to the U.S. Department of Labor, the advance figure for seasonally adjusted initial claims dropped 12,000 to 409,000 for the week ending August 27, from the previous week’s revised figure of 421,000. Investors were thus anxiously awaiting nonfarm employment data, which only ended up frustrating their hopes and stoked recessionary fears. The job data also comes at a time when investors’ fear of another recession was on the decline as economic reports showed some strength in the economy. Both the ISM Manufacturing index and factory orders had showed a positive momentum during the week.
Markets had also been trending up followed by hopes that the Federal Reserve would announce a third round of economic stimulus. Fed Chairman Ben Bernanke had just stopped short of announcing a third round of quantitative easing during his speech at the Jackson Hole on August 26. Bernanke said: “The Fed has a range of tools that could be used to provide additional monetary stimulus.” The job report, therefore, was a great headwind to the markets’ uptrend. Positive job data could have helped the markets register their second-consecutive weekly gain. Investors will keep their fingers crossed for the Federal policy meeting scheduled this month, and what President Barack Obama has to deliver on Thursday regarding the new jobs plan.
Markets were also weighed down by declining banking stocks, after it emerged that a lawsuit was being filed against them for unfair mortgage practices. The Federal Housing Finance Agency will be filing a lawsuit against Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM) and The Goldman Sachs Group, Inc. (NYSE:GS) among other big lenders, accusing them of mortgage practices that resulted in losses for Fannie Mae and Freddie Mac. These stocks plunged 8.3%, 4.6% and 4.6%, respectively. BofA was also the biggest loser among the 30 Dow components, and other banking stocks that fell included Morgan Stanley (NYSE:MS), Citigroup, Inc. (NYSE:C), UBS AG (NYSE:UBS), Deutsche Bank AG (NYSE:DB) and Barclays PLC (NYSE:BCS) and they declined by 5.7%, 5.3%, 3.8%, 6.0% and 7.7%, respectively.
