The Dow Is Plunging. Here's What's Next.

The Dow (INDEX: ^DJI) has plunged 1.2% as of 1 p.m. EDT on today's disappointing jobs report. The economy added 115,000 jobs this month, and the unemployment rate is treading water at 8.1%.

That's 25,000 fewer jobs than forecasters had expected. As Wharton's Justin Wolfers put it, "The strongest part of the U.S. economy appears to be the [economic forecast] revision sector."

Leveraged companies that are highly sensitive to the U.S. economy such as Bank of America (NYS: BAC) , JPMorgan (NYS: JPM) , and Caterpillar (NYS: CAT) are naturally seeing the biggest drops. Owning these stocks is to a large degree a bet on the U.S. and global recovery. Procter & Gamble (NYS: PG) , which already took its licking after a poor earnings announcement last week, is the only Dow stock that's mostly unscathed.

What gives?
The biggest drag on the economy continues to be falling government investment. Lower federal government spending subtracted nearly half a percentage point of GDP this month, largely due to the military drawdown that wasn't offset by new federal spending. Meanwhile, state and local government declines cost another 0.14 points to GDP from lack of highway investment. Nearly every sector of the economy added jobs this month, except for employment in transit and passenger transportation.

This is the second month in a row of mediocre jobs reports, following a strong several months of 200,000-plus job gains. But following a market run-up driven by strong economic performance, investors are getting jittery about this leg of the recovery.

The report is eerily reminiscent of the last two summers, which saw economic slowdowns dashing the hopes of those who thought a full-steam recovery was building. It's another reminder that at a time of weak household spending despite record-low interest rates, the recovery continues to remain shaky as long as U.S. and European governments continue to cut.

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At the time thisarticle was published Ilan Moscovitz doesn't own shares of any company mentioned. You can follow him on Twitter @TMFDada. The Motley Fool owns shares of JPMorgan Chase and Bank of America. Motley Fool newsletter services have recommended buying shares of Procter & Gamble. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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