By Anora Mahmudova, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks sold off sharply in late
trade Monday, resulting in the worst losses for benchmark indexes
in several months on concerns about the December jobs report and
more discussion of the Federal Reserve's bond taper.
Weighing on sentiment were comments from Atlanta Federal Reserve
president Dennis Lockhart in support of further tapering to the one
already announced in December.
The Dow Jones Industrial Average (DJI) suffered the worst
one-day drop since Sep 20, shedding 179.1 points, or 1.1% to
16,257.94 by the close, falling for the fourth-straight session.
.
The S&P 500 index (SPX) closed down 23.17 points, or 1.3% to
1,819.20, snapping its two-day winning streak. The Nasdaq Composite
(RIXF) finished 61.36 or 1.5% lower at 4,113.30. Both the S&P
500 and Nasdaq saw their worst one-day points drop since Nov 7.
In a speech to the Rotary Club of America, Atlanta Fed president
Lockhart said he supports "similar tapering steps" as the one taken
to reduce bond-market purchases by $10 billion by the Federal
Reserve last month, so long as the economy grows at the 2.5% to 3%
clip he's forecasting this year.
He pointed out that the labor market is not as healthy as a 6.7%
unemployment rate suggests as he also said continued disinflation
could pose risks to economic performance. Follow stock market live
blog here.
On Friday, the government reported that the U.S. economy added
74,000 jobs in December, the smallest gain in three years and well
below economists' forecast of about 200,000. The unemployment rate
fell to 6.7%, however, largely due a large number of people
dropping out of the labor force. Investors were undecided whether
this should be taken as a negative or positive for markets, as
stocks fluctuated in an narrow range on Friday, closing mostly
higher.
In separate news, the federal government recorded a budget
surplus of $53 billion in December, the Treasury Department
reported Monday. Nearly $40 billion in payments from
government-controlled mortgage giants Fannie Mae and Freddie Mac
helped the surplus, the largest on record for the month of
December. The surplus brings the government's budget deficit for
the first quarter of fiscal 2014 to $174 billion, 41% lower than
the first three months of fiscal 2013.
This week, investors will also focus on retail sales and
inflation data as well as earnings reports from large banks such as
J.P. Morgan Chase & Co. (JPM) and Goldman Sachs Group Inc.
(GS)Read: Retail data, Beige Book in view after weak jobs
futures
In a research note from David Kostin at Goldman Sachs, wrote
that the S&P 500 valuation is looking "lofty by almost any
measure."
Chaning Smith, managing director at Capital Advisors, said that
markets are playing catch-up with the bond market, finally
realizing that the jobs numbers were fairly bad.
"Investors are also nervous ahead of earnings releases from the
banks tomorrow and if the results miss expectations, there will be
a lot more pressure on the markets," he added.
J.J. Kinahan, chief strategist at TDAmeritrade said that markets
are having a delayed reaction to the jobs data.
"When payroll numbers came in, we all thought that the first
digit was missing, then realized that it was just 74,000. Market
reaction to that number on Friday was anomalous, as they shrugged
them off. Today buyers that usually came in the afternoons were
absent and people were taking profit and lightening their positions
in an anticipation of earnings results," Kinahan added.
* Comment: Nicholas Colas, chief market strategist at ConvergEx
Group, a global brokerage company based in New York, wrote in a
note: "The most disappointing number from Friday's Employment
Report was not the miss to jobs growth expectations (74,000 versus
the hoped for 200,000), but rather the continued precipitous
decline in labor force participation. At 62.8%, this measure of
people actually working or looking for employment has slumped back
to the levels of the 1970s economic malaise. More importantly, the
trend here has outstripped the U.S. Government's forecasts, which
only called for such a level around 2020. January 2013 may not see
any improvement if Congress does not extend emergency unemployment
benefits, with participation dropping further if the long-term
unemployed chose to exit the workforce as a result. That would
leave the Fed with an unwelcomed communications problem: quickly
drop the 6.5% threshold unemployment rate from its monetary policy,
or risk being seen as out of touch."
* Movers and shakers: Beam Inc. shares surged 24.6% on news that
it will be acquired by Suntory Beverage Food Ltd. in a $16 billion
deal, including debt. Shares of Alnylam Pharmaceuticals Inc. soared
40.9% on news Sanofi SA will buy a 12% stake in the company to
strengthen its new drug pipeline. The two firms will extend
research collaboration to develop and sell new drugs aimed at
treating rare genetic disorders. Shares of Twitter Inc. rose as
high as 4% but eased by late trade and closed 1.4% after Goldman
Sachs lifted its price target for the social media network to $65
from $46 and maintained a buy rating. Wendy's Co.shares rose 6.4%,
as the fast-food company's expected adjusted earnings per share
were higher than analysts expected. Wendy's also said its board had
authorized a stock buyback program of $275 million. Shares of
Lululemon Athletica Inc. dropped 16.6% after the company cut its
profit view.
* In other markets:European and Asian stocks rose on Monday.
Gold and oil prices were lower, while the dollar pushed higher.
More stories from MarketWatch:
Stock investors get ready for big bank earnings
Retail data, Beige Book in view after weak jobs figures
Banks, hedge funds and what Citi has to tell its rich
clients
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