Market Wrap: Stocks Drop; Jobs Report Clouds Rate Outlook
NEW YORK -- It's an old adage that investors hate uncertainty. Unfortunately for them, they got more of it Friday.
The stock market has been volatile for weeks on concern that China's economy is slowing more rapidly than previously thought. But investors have also had to contend with uncertainty about the outlook for interest rates.
Investors had been hoping that the government's August jobs report would give them more clarity on interest rates, before a key Federal Reserve meeting later this month. However, a mixed report left them guessing as to whether policymakers will feel confident enough about the strength of the U.S. economy to raise interest rates from historic lows.
%VIRTUAL-pullquote-"It's interesting and disappointing that today's data didn't provide us with that 'Ah-ha!' clarity that everyone is seeking.%The report showed that the U.S. unemployment rate fell to a seven-year low in August, but also that employers added fewer jobs than forecast.
"It's interesting and disappointing that today's data didn't provide us with that 'Ah-ha!' clarity that everyone is seeking," said Michael Arone, Chief Investment Strategist at State Street Global Advisors.
The Dow Jones industrial average (^DJI) fell 272.38 points, or 1.7 percent, to 16,102.38. The Standard & Poor's 500 index (^GSPC) gave up 29.91 points, or 1.5 percent, to 1,921.22. The Nasdaq composite (^IXIC) slipped 49.58 points, or 1.1 percent, to 4,683.92.
Fed policymakers have kept their benchmark interest rate close to zero since late 2008 to help revive the economy after the Great Recession. Those low rates have also been good for the stock market, supporting a bull run that has lasted for more than six years.
On Friday, the S&P 500 ended the week down 3.4 percent, its second-worst weekly drop of the year. The index is down nearly 10 percent from its peak of 2,130.82 reached May 21.
Much of the damage this week was done Tuesday, after gloomy manufacturing data out of China rekindled fears about the health of the world's second-largest economy.
But despite the big drop in stocks, some strategists say that much of the evidence suggests the U.S. economy is maintaining its recovery. A report this week showed robust growth in the service industry.
"As China is sneezing, there is very little to suggest that the U.S. is catching a cold," said Jeremy Zirin, chief U.S. equity strategist for Wealth Management Research at UBS.
Trading volume was lighter than usual ahead of the Labor Day holiday. U.S. markets will be closed Monday in observance of the holiday. However, the Chinese stock market, which has been closed for a two-day holiday, will reopen.
Among individual stocks, Netflix (NFLX) continued its slide Friday. The company's stock has slumped for six straight days and closed the week down 16 percent on speculation that competition from rivals including Amazon (AMZN) and Hulu is intensifying. Variety also reported Monday that Apple is exploring a move into original programming.
Bond prices edged up after the jobs report, pushing the yield on the benchmark 10-year Treasury note down to 2.13 percent from 2.16 percent Thursday.
In Europe, the FTSE 100 index of leading British shares was down 2.4 percent, Germany's DAX fell 2.7 percent. The CAC-40 in France was 2.8 percent lower.
The euro edged up to $1.1151. The dollar fell 1 percent against the Japanese currency, to 118.99 yen.
In metals trading, the price of gold fell $3.10 to settle at $1,121.50 an ounce, silver fell 16 cents to $14.54 an ounce and copper declined seven cents to $2.32 a pound.
The price of oil fell along with stocks but pared its losses after a closely watched count of active drilling rigs in the U.S. fell. Crude declined 70 cents to close at $46.05 a barrel in New York. Brent Crude, a benchmark for international oils used by many U.S. refineries, fell $1.07 to close at $49.61 a barrel in London.
In other futures trading on the NYMEX:
- Wholesale gasoline fell 1.9 cents to close at $1.418 a gallon.
- Heating oil fell 2.3 cent to close at $1.596 a gallon.
- Natural gas fell 7 cents to close at $2.655 per 1,000 cubic feet.
What to watch Monday:
- U.S. financial markets are closed for the Labor Day holiday.