Late Rebound Defies Weak Jobs Data
Saturday, December 6, 2008
Stocks surged yesterday, shrugging off a government report showing that U.S. companies shed jobs last month at the fastest rate in three decades.
After falling more than 2 percent in the morning, stocks rallied in the last hour of trading. The Dow Jones industrial average climbed 3.1 percent, or 259.18 points, to 8635.42. The Standard and Poor's 500-stock index was up 3.7 percent, or 30.85 points, to 876.07, while the tech-heavy Nasdaq composite index rose 4.4 percent, or 63.75 points, to 1509.31.
But after five volatile days in which several large companies announced major layoffs and the country's recession became official, the Dow and S&P each ended the week down more than 2 percent. The Nasdaq was down 1.7 percent for the week.
Investors had been anxiously awaiting the unemployment data all week and their dismal expectations were exceeded. U.S. employers pared 533,000 jobs, and the unemployment rate spiked to 6.7 percent, according to Labor Department data. The country has now lost 1.55 million jobs in the past six months, almost as many as were lost in the entire 2001 recession, according to High Frequency Economics.
Stocks regained ground during the afternoon as investors apparently decided chances were increasing that Congress and government regulators will step in with more economic help, analysts said.
Investors now widely expect the Federal Reserve to cut interest rates again and Congress to approve a massive economic stimulus package early next year, analysts said. The unemployment news "is a shock, but they also know that Washington will have to get very serious about crafting a stimulus," said Bernard Baumohl, managing director of New Jersey-based Economic Outlook Group.
Yesterday's gains may not last, some analysts said. "I believe it's too much of a rally, too fast," said Harry Rady, chief executive of Rady Asset Management. "We're still going to have a difficult couple of years irrespective of any stimulus package. There are too many things that are broken."
Crude oil prices slipped 6.6 percent to $40.81 a barrel on the New York Mercantile Exchange. Already down more than 70 percent from its peak of $147 a barrel in July, oil could fall to $35 a barrel within months or even $25 next year if China falls into a recession, analysts now predict.
"Oil prices were inflated beyond reality, and now they are going the other way and overshooting on the downside," said Fadel Gheit, oil analyst for Oppenheimer & Co. "It goes from feast to famine."