Stocks Fall as Jobs Report Dampens Recovery Hopes

By Renae Merle
Washington Post Staff Writer
Friday, July 3, 2009

Wall Street closed the week with a sharp decline yesterday after a weak labor report stoked investor concerns of a prolonged recession.

The market losses were broad-based, with each of the 30 blue-chip stocks on the Dow Jones industrial average losing ground. All of the major indexes, including the Dow, fell at least 2.6 percent. Meanwhile, nervous investors moved into government bonds, a traditional safe haven during market turbulence, raising prices on some long-term notes.

The Dow fell 2.6 percent, or 223.32 points, to close at 8280.74, while the broader Standard & Poor's 500-stock index was down 2.9 percent, or 26.91 points, to 896.42. The tech-heavy Nasdaq composite index tumbled 2.7 percent, or 49.20 points, to 1796.52.

After a short trading week, the Dow and the S&P 500 were down 1.9 percent and 2.4 percent, respectively. The Nasdaq lost 2.3 percent for the week. U.S. financial markets are closed today for the Fourth of July holiday.

After Wall Street concluded the second quarter earlier this week with its first quarterly gain in more than a year and a half, "many investors were feeling that the worse was behind us," said Matthew D. McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel, an investment management firm. "This is a reminder that, no, it's not."

Financial stocks helped lead the declines yesterday. Bank of America and Morgan Stanley fell 3.1 percent and 4.8 percent, respectively. J.P. Morgan Chase fell 4.4 percent.

Investors have been caught between optimism about early signs the recession is easing and pessimism about the pace of recovery. The labor report released yesterday exacerbated concerns that the nation's workforce remains under assault and is unlikely to recover soon.

The number of jobs on employers' payrolls fell by 467,000 in June, which was significantly worse than analysts had expected. The unemployment rate rose to 9.5 percent, from 9.4 percent, according to the Labor Department report. Many economists expect the rate to surpass 10 percent by fall.

The report suggests that hopes for an economic recovery during the second half of the year are "overly optimistic," Steven Ricchiuto, chief economist for Mizuho Securities USA, wrote in a research note. "Instead, the data is fully consistent with our forecast for a slower rate of decay in the economy. The worst of the contraction may be behind us but the economy is still in consolidation and will be through year-end."

In one piece of upbeat labor news, the numbers of workers filing new claims for jobless benefits last week fell by 16,000 to 614,000, according to a separate Labor Department report issued yesterday. But the rate remains historically high and economists have said the number of workers needing unemployment insurance for an extended period is troubling.

The weak labor reports also weighed on the energy sector, sending crude oil prices down nearly 4 percent, to $66.73 a barrel on the New York Mercantile Exchange. That dragged down energy stocks, including Exxon Mobil, Chevron and ConocoPhillips, which fell about 3 percent each.

"Questions about the recovery weighed on oil," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. "More people lost their jobs, and the people who are working are not getting as much. It makes people more pessimistic about demand for oil and for anything."

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