US stocks dip
Wall Street got what it wanted today – Labour Department figures showing slower US job growth – but cautious investors pushed stocks modestly lower, unwilling to trust that the report was enough to keep the Federal Reserve from raising interest rates next week.
The economy created 113,000 jobs last month, far fewer than the 145,000 expected by economists and down from 121,000 created in June. Unemployment rose to 4.8% from 4.6%, and wage growth was constant at 0.4%.
Market watchers had believed slower job growth would keep inflation from taking hold, and thus allow the Fed to stop raising rates, and stocks have been on the upswing over the past two weeks.
However, by this afternoon, analysts said a Fed pause was already accounted for in stock prices, and the potential downside for stocks if the Fed does raise rates made Wall Street nervous.
Market strategists and analysts remained undaunted in proclaiming an end to rate hikes, but some noted that a pause also means that the economy has indeed slowed down, which could affect corporate earnings in the coming months.
“I think the Fed is done for now,” said Ken McCarthy, chief economist for vFinance Investments. “But I do think there’s an element of concern that maybe what this employment report might be telling us is that the economy is weaker than we thought. Not just slowing down, but actually weak.”
The Fed’s Open Market committee meets next Tuesday to consider whether the nation’s benchmark rate should be increased by a quarter percentage point to 5.5%.
The Dow Jones industrial average fell 2.24, or 0.02%, to 11,240.35 – a 104-point swing from its intraday high early in the session.
Broader stock indicators also lost ground. The Standard & Poor’s 500 index lost 0.91, or 0.06%, to close 1,279.36, while the tech-focused Nasdaq composite index dropped fell 7.29, or 0.35%, to end on 2,085.05 after Apple Computer said it would have to restate earnings due to stock option accounting issues.
Bonds surged on the jobs report, with the yield on the benchmark 10-year Treasury note falling to 4.90% from 4.96% on Thursday. The dollar fell against most major currencies, while gold prices also slipped.
The market’s initial response to the jobs report – a sharp rise in stocks in early trading – indicated that a growing number of investors believe that the Fed might actually not raise rates next Tuesday.
That’s a marked shift from a few weeks ago, when an August rate hike was almost a foregone conclusion.
Of course, if the central bank does implement another quarter-point rate increase, there is likely to be widespread disappointment and a big pullback on Wall Street, which most probably led to the afternoon downturn today.
“Guessing what the Fed’s going to do is like a latter-day financial parlour game, and nobody is necessarily very good at it,” said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers. “Wage growth is still steady, you have energy prices that are still pretty high – the inflationary pressures are still there. You may get a pause next week, you may not, but the direction is still pretty set.”
For the week, the debate over rates kept the markets in flux, and the major indexes finished mixed and little changed. The Dow rose 0.18% and the S&P 500 added just 0.06%, while the Nasdaq fell 0.43%.
Crude oil futures fell for a second session in a row as Tropical Storm Chris, which traders had feared would damage oil rigs and refineries along the Gulf of Mexico, was downgraded to a tropical depression. A barrel of light crude settled at $74.73, down 73 cents, on the New York Mercantile Exchange.
Higher oil prices in the second quarter helped Occidental Petroleum post a surge in revenue, but second-quarter net profits declined year-over-year due to a one-time gain a year ago. Occidental fell 1.70 to 105.24.
The tech sector saw some selling after Apple said it would have to restate earnings reports due to errors made in accounts for employee stock option grants, an increasing problem for corporate America.
Apple, which said earnings reports dating back to 2002 were unreliable, lost 1.29, or 1.8%, to 68.30.
Advancing issues outnumbered decliners by nearly 9 to 7 on the New York Stock Exchange, where volume totalled 1.73 billion shares, compared with 1.81 billion traded on Thursday.
The Russell 2000 index of smaller companies was down 3.12, or 0.44%, at 701.26.
