Investors dumped stocks on Friday after a downbeat job growth report raised fears that the economy was once again entering a spring slowdown — and pulling the market down with it.
All of the major indexes fell and ended the week in negative territory after a federal jobs report showed that the economy added the fewest number of jobs in nine months. The closely watched report capped a week of other lackluster economic data and signs of continued economic troubles in Europe.
The market is now caught in a crosswind. Weak job numbers will probably keep the Federal Reserve committed to leaving interest rates low, pushing investors into the stock market in search of higher yields. But with the economy showing signs of unexpected strain, investors are bracing for the fallout from the across-the-board spending cuts, known as the sequester, that could put more pressure on jobs and lead to further market volatility.
“There’s now a suspicion that the economy may not be as strong as people expected it to be coming out of the first quarter,” said Harvey Goldsmith, managing director at Cantor Fitzgerald. “There’s concern that the swoon we’ve seen in the spring and early summer months over the past two or three years is going to be repeated.”
The benchmark Dow Jones industrial average slipped .28 percent Friday to close at 14,565.25 and was down slightly for the week. Eighteen of its 30 index’s component stocks lost ground, led by American Express and Cisco.
The Standard & Poor’s 500 index fell .43 percent to 1,553, and 1 percent for the week, its largest weekly loss for the year. The Nasdaq dropped .65 percent to close at 3,203, losing nearly 2 percent for the week.
The sell-off is not unusual after a market run-up like the one that took place in the past few months, several market analysts said. The Federal Reserve’s massive stimulus effort and big improvements in the housing sector buoyed the rally, and ultimately positioned stocks for an overdue correction that might continue in coming weeks.
Only a month ago, the benchmark Dow Jones industrial average reached an all-time high, blowing past the intraday and closing records set in October 2007. The Standard & Poor's 500 hit a record high Tuesday.
“We’ve had a chain of big economic improvements that drove a rally toward the end of last year and kept driving it this year,” said Randy Frederick, managing director of active trading and derivatives at Charles Schwab. “Now the numbers are softening and we’re at a pause. . . . We’re in a soft patch.”
Against that backdrop, companies across various sectors watched their shares tumble Friday. Several financial stocks were hard-hit, including the shares of banks, which are especially sensitive to economic developments. Shares of Wells Fargo and HSBC dropped almost 1 percent, while those of Toronto Dominion Bank fell 1.71 percent.
“Bank investors have made huge amounts of money in the last 18 to 20 months; now they can simply take their money off the table,” said Richard Bove of Rafferty Capital Markets.
But some analysts said the sell-off should be put in perspective.
For instance, American Express’s shares fell more than 2 percent Friday, closing at $65.30. But the company’s stock is up nearly 14 percent so far this year. “What you’ve seen this week is a correction,” said Phil Orlando, chief equity market strategist at Federated Investors. “And it’s nothing to pull our hair out over.”
Peter Cardillo, chief market economist at Rockwell Global Capital, also notes that the talk of a weakening job market lessens the chances of the Federal Reserve winding down the stimulus program that has increased investor enthusiasm for stocks.
“It means that equities will stay in favor,” Cardillo said. “That doesn’t mean we’re not headed for some sort of correction, though. We probably are.”