Jobs Report Sends Dow Spiraling

Charlie Kannel, The Motley Fool
Updated

No lucky break for investors today. The jobs report released this morning announced non-farm payrolls had only risen by 80,000 jobs, below projections of 100,000 new jobs. While many investors expected a number below the forecast, the markets still dropped. As of 11:45 a.m. EDT, the Dow Jones Industrial Average (INDEX: ^DJI) and the S&P 500 (INDEX: ^GSPC) had both slumped around 1.25%. The unemployment rate stubbornly remained at 8.2%.

The report also released updated figures for the previous two months: April's payroll change was revised to 68,000 from 77,000, while May's figure was bumped up to 77,000 from 69,000. While June did have better figures than the previous two months, the second quarter, with an average job creation rate of 75,000 per month, still pales compared to the first quarter's pace, when an average of 226,000 jobs were created each month. These negative numbers put additional pressure on the Fed and Ben Bernanke to deliver further stimulus and rev up our sputtering economy.

One positive sign is that the labor force grew by 156,000 in June, adding to a 1.66 million increase in the past year. This means that many workers who had previously left the workforce out of frustration are rejoining the battle, and now it's a matter of matching workers with positions, a task easier said than done. Companies seem hesitant to invest in new hires, as there were 3.4 million job openings at the end of April, according to the Bureau of Labor Statistics. This frictional unemployment is to be expected, although the delay may be longer than normal with companies spending less on recruiting or waiting longer for the right candidate. A second silver lining is that private sector jobs have increased more than the general payroll numbers, but public sector layoffs pare the gains in the private sector. This is an unavoidable result of trying to stabilize government revenue through austerity measures, as the government has cut 1.04 million jobs since May 2010.


The market in focus
Aluminum producer Alcoa (NYS: AA) took the bad news hard, falling 3%. Most commodity producers were down, while gold and oil prices declined as well. Alcoa shares likely slid in advance of the company's earnings announcement due next Monday. The average expectation is only $0.07 per share, a 78% decline from the same quarter last year. With profit falling 69.5% in the first quarter alone, shares have not fared well, dropping over 10% since the beginning of April. While Alcoa predicts global demand for aluminum to climb 7% in 2012, declining commodity prices will likely lead to further hits to Alcoa's profitability.

The technology sector decreased the most, falling 2.15% in aggregate. Microsoft, Intel, and IBM were all down around 2%, but none suffered as much as Hewlett-Packard (NYS: HPQ) , which has posted a 3.3% loss. Speculation over a potential tablet may be driving Hewlett-Packard's drop, as such a move would contradict the company's recent announcement that it would not develop such a product. Many investors have begun to question the tech company's future.

McDonald's (NYS: MCD) was one of only two stocks on the blue-chip index in the green today, the other being AT&T. Shares had rose 0.05% just before noon. The fast-food company is down nearly 11% year to date, making it the Dow's second-worst-performing stock of 2012. Shares could be rising as McDonald's ever-increasing 3.2% yield looks increasingly attractive to investors moving away from bonds' pitiful yields.

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At the time thisarticle was published Charlie Kannel owns no shares of the companies mentioned above. The Motley Fool owns shares of Microsoft, McDonald's, and International Business Machines. Motley Fool newsletter services have recommended buying shares of Microsoft and McDonald's. Motley Fool newsletter services have also recommended creating a bull call spread position in Microsoft and a synthetic long position in International Business Machines. The Motley Fool has a disclosure policy.
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