Stocks shake off jobs report to end with big gains

12/5/2008

NEW YORK Wall Street put an upbeat spin Friday on the government's report that the nation lost more than half a million jobs last month. Stocks reversed early losses and closed sharply higher as the data raised hopes that Washington will again step in to help the economy.

The Dow Jones industrial average traded in a 568-point range Friday as investors' shock dissipated over the Labor Department's report that employers slashed 533,000 jobs in November compared with the 320,00 that economists forecast. Ultimately, even a terrible reading on employment wasn't surprising to a market that has been drubbed by a stream of bad economic news.

The market's advance left Wall Street with moderate losses for the week, the result of a nearly 680-point slide in teh Dow on Monday. More important, the market was able to claim a victory of sorts over the course of the week except for Monday's slide, stocks repeatedly overcome bleak economic data and corporate announcements.

Investors who originally sold Friday after the employment figures had a change of heart by afternoon, believing the numbers could make the government more likely to supply more aid for the economy. They also appeared relieved by the market's relatively cool reaction to the data trading was orderly and the huge loss of jobs didn't spark the type of massive sell-off it might have even a month ago when Wall Street still trying to determine how severe the recession would be.

"In a kind of paradoxical sense, the really ugly employment numbers probably helped the case for more help from Washington, whether it's through the broader stimulus plan or more targeted industry measures," said Craig Peckham, equity trading strategist at Jefferies & Co.

Job losses were widespread, hitting manufacturing, construction, retail, financial and other sectors.

Beyond the hopes for more aggressive moves by the government, strength in the tattered financial sector also gave a boost to the overall market Friday. An upbeat forecast from Hartford Financial Services Group Inc. cut through some of investors' fears that profits among financial firms would continue to spiral lower.

The company raised its profit expectations for the year and quelled some concerns about the strength of its balance sheet.

Kim Caughey, equity research analyst at Fort Pitt Capital Group, said that Hartford's "bullish commentary" boosted investors' appetite for financial companies like insurers and banks.

According to preliminary calculations, the Dow industrials jumped 259.18, or 3.09 percent, to 8,635.42 after falling by 258 and rising as much as 310 in the volatile trading late in the session.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 30.85, or 3.65 percent, to 876.07, and the Nasdaq composite index rose 63.75, or 4.41 percent, to 1,509.31.

The Russell 2000 index of smaller companies rose 21.56, or 4.91 percent, to 461.09.

Five stocks rose Friday for every one that fell on the New York Stock Exchange, where trading volume came to a light 1.62 billion shares compared with 1.47 billion traded Thursday.

For the week, the Dow fell 2.2 percent, the S&P 500 declined 2.3 percent and the Nasdaq fell 1.7 percent.

Bond prices tumbled as stocks turned higher ending a winning streak that had sent yields to record lows for much of the week. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 2.71 percent from 2.56 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.02 percent from 0.01 percent late Thursday.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell $2.86 to settle at $40.81 a barrel on the New York Mercantile Exchange. Concerns about the economy and weakening energy demand have kept oil prices near four-year lows. The price of oil has fallen a staggering 72 percent since peaking at $147.27 in July.

Independent investment strategist Edward Yardeni said Friday's employment snapshot confirms the nation is in a difficult recession but that the extent of the weakness likely will galvanize government officials.

"The number was a shocker to such an extent that it's clearly going to require an enormous stimulus response from Washington," he said. "Clearly, the Fed and the Treasury are going to move even faster."

The Federal Reserve and the Treasury have been taking unprecedented steps to revive the economy since the mid-September bankruptcy of Lehman Brothers Holdings Inc. The biggest move was the government's $700 billion rescue for the banking sector. The Treasury said Thursday it is considering a plan to encourage banks to make mortgage loans at low rates; that could help patch up the troubled housing market, which many analysts say is crucial to any economic recovery.

"In the perverse way that the market works, there's a hope that it further fuels the dire need for economic stimulus for the Street and for the consumer, with so many people out of work right now," said Ryan Larson, senior equity trader at Voyageur Asset Management.

Wall Street has reacted with both optimism and indifference in recent months as policymakers have tried to revive stagnant credit markets and stabilize wobbly banks. Some analysts have been hopeful that relative quiet in the markets for more than a week portends a return of some stability because of the government's efforts, while others warn that the volatility in the market will continue.

"The markets are, in my view, acting not stable at all but with excessive volatility and unpredictability," Townsend said. "It's a very difficult market to invest into and a very difficult market to trade."

While the deluge of bad economic readings have weighed on the markets in the past three months, investors are growing somewhat accustomed to the news. The stock market, which generally looks ahead, tends to recover six to nine months before economic reports show a recession is abating. At some point, investors likely will determine that a recession has been fully built into the market's expectations and will begin placing bets on a recovery.

Part of investors' latest uncertainty centers on the automakers. Investors are observing a second day of congressional hearings with the heads of Detroit's top three automakers, who are appearing on Capitol Hill in an effort to avoid running out of cash.

General Motors Corp., Ford Motor Co. and Chrysler LLC are collectively seeking $34 billion in emergency funding. While the market largely expects the companies will win some sort of government aid, support for the troubled carmakers isn't assured. Friday's jobs report likely put added pressure on lawmakers to offer a lifeline that would let the companies avoid bankruptcy.

GM fell 3 cents, or 0.7 percent, to $4.08, while Ford rose 6 cents, or 2.3 percent, to $2.72. Chrysler isn't publicly traded.

Financial stocks also rallied after Hartford released its forecast. Hartford's stock doubled, jumping $7.38 to $14.59. Other financials jumped as well. Wells Fargo & Co. rose $2.39, or 8.7 percent, to $29.94, while Prudential Financial Inc. surged $7.35, or 35 percent, to $28.52.

Optimism that buoyed some overseas markets following massive interest rate cuts across Europe Thursday deflated following the report on U.S. jobs. Britain's FTSE 100 fell 2.74 percent, Germany's DAX index fell 4 percent, and France's CAC-40 declined 5.48 percent. Japan's Nikkei stock average slipped 0.08 percent; trading in Tokyo ended before the employment report was released.