By Dina ElBoghdady and Frank Ahrens
Washington Post Staff Writer
Saturday, June 5, 2010; A10
U.S. stocks hit their lowest levels since February on Friday as a disappointing jobs report and worries about the fiscal health of yet another European country ignited a sell-off.
All the major U.S. indexes plunged by more than 3 percent after a Labor Department report showed that hiring waned in the private sector last month, busting a string of more upbeat data about the U.S. economy and crushing investor confidence about the prospects for growth.
The jobs data added to ongoing market jitters about the debt crisis in Europe, made worse on Friday when a spokesman for Hungary's prime minister said that his country's economy is in "a grave situation." The remark fanned fears that the debt problems gripping some European countries will sink the chances of a global economic recovery.
"This jobs report was supposed to be the catalyst that would have showed us that the U.S. economy is insulated" from Europe's financial troubles, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Instead, it showed us that business leaders, just like investors, are very nervous and tentative."
The sell-off resulted in the second-worst day of the year for U.S. stocks, as the Dow Jones industrial average dipped below the psychologically significant 10,000 level. The Dow shed 3.15 percent or 323.31 points. It closed at 9,931.97, with all 30 blue-chip stocks down for the day.
The Standard & Poor's 500-stock index, a broad measure of U.S. markets, fell 3.44 percent, or 37.95 points, to 1,064.88. The tech-heavy Nasdaq slumped 3.64 percent, or 83.86 points, to 2,219.17.
For the week, the Dow and S&P were down by more than 2 percent and the Nasdaq was down about 1.7 percent. All three indexes are in negative territory for the year.
Investors fled commodities, contributing to a drop in oil prices, which fell to $71.51, down $3.10. Gloom about the economy, which typically leads to less oil consumption, also hurt oil prices.
Every major European index also fell. The FTSE 100 in Britain tumbled 1.63 percent, the DAX in Germany fell 2 percent and the CAC 40 in France plunged 2.86 percent.
By Friday afternoon, the euro was at its lowest level in more than four years against the dollar as investors sold off the currency.
Nervousness about Hungary helped push down the euro, analysts said. Even though the country's relatively small economy does not use the euro, it trades with many nations that do.
"There's a perceptual tug of war, and we don't need another country, no matter how small or unimportant from the global GDP standpoint, to begin talking about debt problems," said Phil Orlando, chief equity market strategist at Federated Investors in New York. "It makes investors pull in their horns."
Some analysts said investors were most likely dumping stocks ahead of the weekend because they feared what could develop while the markets are closed. The sell-off might also have been exacerbated by "stop-loss orders," which refer to investors' instructions to brokers to sell their stock when it drops to a certain price or has a certain percentage drop. This can create a snowball sell-off effect.
But by far, the jobs report was the biggest disappointment of the day because the U.S. economy had been the bright spot in a period of turmoil.
The Labor Department report showed that even though the economy had gained jobs in May and the unemployment rate had slipped, an outsized share of those jobs came from the hiring of temporary workers by the U.S. Census Bureau. Private employers added only 41,000 workers, well below the 218,000 jobs gained in April and far below what many analysts expected.
"The market is going to sell off first and ask questions later," said Paul Zemsky, head of asset allocation for ING Investment Management. "The market is reacting as if this is a double-dip recession."
Former labor secretary Robert Reich, speaking early Friday on CNBC, raised that possibility.