Markets had their worst day this year on Friday, as they struggled to come to terms with dismal domestic jobs data. The lingering European crisis and a disappointing report on China’s tepid manufacturing sector added to the gloom. The benchmarks had registered one of their best first quarters in over a decade earlier, but with Friday’s declines the Dow has now lost all of its yearly gains. The heavy slump also resulted in another weekly loss for the markets.
The Dow Jones Industrial Average (DJI) slumped 2.2% or by 274.88 points to close sharply lower at 12,118.57. The Standard & Poor 500 (S&P 500) plunged 2.5% and closed Friday’s trading session at 1,278.04. The tech-laden Nasdaq Composite Index dipped 2.8% and ended at 2,747.48. Amidst the incremental threat to the global economy, the fear-gauge CBOE Volatility Index (VIX) soared 10.8% to move up to 26.7. Consolidated volumes on the New York Stock Exchange, the Nasdaq and the American Stock Exchange were 8.3 billion shares, significantly higher than the year-to-date daily average of 6.85 billion shares. Decliners completely outnumbered the advancing stocks on the NYSE; as for six stocks that dropped, only one stock could trade higher.
Markets had started the year on a bullish note spurred on by robust domestic economic data released from December last year onwards. While the Dow and S&P 500 enjoyed their biggest first-quarterly since 1998, the tech-laden Nasdaq has recorded its best-first-quarterly performance since 1991. In the first quarter, the Dow, S&P 500 and Nasdaq had jumped 8.1%, 12.0% and 18.7%, respectively. Economic data has played a crucial role in markets’ uptrend and the labor and housing markets in particular have posted encouraging readings. However, the past couple of months have been harsh. More particularly, the month of May has been the worst so far this year and while the S&P 500 suffered its worst month since last September, the Dow and Nasdaq had their worst monthly performance since May 2010. The Dow has now erased all of its yearly gains and is trading 0.8% lower. The S&P 500 is just 1.6% higher now and the Nasdaq is up by 5.4% for 2012.
Incidentally, the strong economic data had helped the benchmarks during the first quarter, on Friday dismal jobs numbers weighed on the markets and they registered their worst performance this year. The near 275 points decline for the Dow was its biggest single day drop since November last year. As for the S&P 500, it too suffered the largest percentage decline since November 9. Moreover, the S&P 500 was at its lowest levels since early January, and for the first time this year the index moved below its 200-day moving average.
Delving into jobs data released by the U.S. Bureau of Labor Statistics, nonfarm payroll employment has ‘changed little in May’, adding a mere 69,000 jobs. This reported increase was well below consensus estimates that had expected an addition of 149, 000. Moreover, the unemployment rate increased to 8.2% from 8.1%. Also, “The number of long-term unemployed (those jobless for 27 weeks and over) rose from 5.1 to 5.4 million in May”. The hike in employment in May was definitely a cause for worry when compared to estimates as well as the average monthly gain of 226,000 recorded during the first quarter of the year.
Weak domestic job numbers come right after data that showed unemployment in the Euro zone at a record high in April. Europe has been the flashpoint for the markets’ downtrend over the past couple of months and more so in May. A shift in political dynamics has dampened the mood and Greece with its political uncertainties and increasing chances of exiting the euro troubled US markets throughout last month.
While those concerns remained an overhang on Friday, data reflecting a slowing manufacturing sector in China added to the gloom. China’s purchasing managers’ index for manufacturing slumped to 50.4 in May from 53.3 in April. Moreover, it was at its lowest level in five months. A reading above 50 is considered to be an expansion. However, the decline clearly indicates the slowing rate of growth in manufacturing activity. Separately, the HSBC China manufacturing PMI contracted to 48.4 from 49.3 in April. This was the index’s seventh consecutive month below the key level of 50 and the employment sub-index contracted to 48.1, its lowest level since March 2009.
The financial sector was the worst performer on Friday amidst signs of troubling global economic conditions. The financial Select Sector SPDR (XLF) plunged 3.6% and the KBW Bank Index (BKX) slumped 4.9%. Among these stocks, American Express Company (NYSE:AXP), Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Company (NYSE:WFC), PNC Financial Services (NYSE:PNC) dropped 4.3%, 4.5%, 4.2%, 3.7%, 5.9% and 5.5%, respectively.
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