Major indexes initially sank Friday after U.S. nonfarm payrolls plunged 533,000, but bounced back late in the session
U.S. stocks rallied late in Friday's session, bouncing back from sharp declines in the morning when a government report showed a steep deterioration in the jobs market. The data provided more signs that the U.S. is heading deeper into recession.
The Labor Department said Friday employers cut 533,000 more jobs in November -- the most since 1974. Analysts were expecting 320,000 job cuts. The unemployment rate is up to 6.7% from 6.5% in October.
Investors fear higher unemployment will lead to a more severe pullback in consumer spending, which is a crucial component to helping the economy rebound.
However, by late afternoon, traders had shrugged off those worries and were buying again. Recent extreme volatility in the market has made such midday reversals almost seem routine for stock investors.
On Friday, the Dow Jones industrial average rose 259.18 points, or 3.09%, at 8,635.42. The broad S&P 500 index rose 30.85 points, or 3.65%, to 876.07. The tech-heavy Nasdaq composite index gained 63.75 points, or 4.41%, to 1,509.31.
If the late-day rally had any logic, it might be attributed to a realization that the U.S. is already deep into recession -- and thus might be that much closer to a recovery. "It's deep and it's painful, but I'm hopeful we're out of it by the third quarter" of 2009, says Peter Cardillo, chief market economist at Avalon Partners.
Though job losses could continue and the unemployment rate could rise to 7.5% or 8%, Cardillo believes November's figures are likely to be the climax of job-cutting.
S&P's MarketScope attributed Friday's rally partly to bargain hunting and short covering, with technology, retail and financial shares leading the way. On the New York Stock Exchange, 22 shares were higher for every nine losing value. On the Nasdaq, the ratio was 19-9 positive.
Bond prices fell Friday. Energy issues were falling in step with a drop in crude oil prices.
The dollar index moved higher following the huge payrolls drop. Gold futures were lower.
European stocks finished sharply lower after the U.S. jobs report, with major indexes falling 2.74% in London, 5.48% in Paris, and 4.00% in Frankfurt. Asian stocks finished mixed, with Tokyo stocks falling 0.08%, Hong Kong up 2.49%, and Shanghai higher by 0.86%.
The job reductions were the most since a whopping 602,000 positions were slashed in December 1974, when the country was in a severe recession.
October's job loss count was revised to -320,000 from -240,000, reports Action Economics, and September's was revised to -403,000 from -284,000, for a net -199,000 revision.
Average hourly earnings rose 0.4% after a 0.3% increase in October (revised from 0.2%). The workweek fell to 33.5 from 33.6 previously. Household employment plunged 673,000. Total private sector jobs declined 540,000, with the goods producing sector dropping 163,000 jobs; manufacturing lost another 85,000 jobs. Construction jobs fell 82,000. Employment in the service producing sector declined 370,000. Government added 7,000.
"Wow, the data are far worse than expected across the board and should be bullish for Treasuries and bearish for stocks and the dollar, but it's not clear how much upside there still is in Treasuries," wrote Action Economics analysts in a website posting Friday.
"While we expect the FOMC to cut the funds rate target to 0.5% at the December 15, 16 policy meeting, it we suspect they might also alter their statement to indicate that the effective funds rate will continue to trade below the target as they keep the system flush with reserves," says Action Economics.
Employers are slashing costs to the bone as they try to cope with sagging appetites from customers in the U.S. and in other countries, which are struggling with their own economic troubles.
President-Elect Barack Obama said Friday the jobs report pointed to the need for more action by the federal government. "There are no quick and easy fixes to the crisis, which has been many years in the making, and it's likely to get worse before it gets better," he said in a statement.
The carnage -- including the worst financial crisis since the 1930s -- is hitting a wide range of companies.
In recent days, household names like AT&T Inc. (T), DuPont (DD), JPMorgan Chase & Co. (JPM), as well as jet engine maker Pratt & Whitney, a subsidiary of United Technologies Corp. (UTX), and mining company Freeport-McMoRan Copper & Gold Inc. (FCX) announced layoffs.
Addding to the economic gloom Friday, the U.S. mortgage delinquency rate rose a record 6.99% in the third quarter, according to a report from the Mortgage Bankers Association (MBA), compared to 6.41% in the second quarter. Loans already in foreclosure increased to 2.97% (from 2.75% in the second quarter), also a record clip. The data show that one in ten Americans are either behind on mortgage payments or had their home in foreclosure last quarter. According to the report, the rise in delinquencies was paced by an increase of loans with payment 90 days or more past due, which increased to 2.2% from 1.83% in the second quarter. Mississippi, Louisiana, Michigan, and Indiana had the highest rates of delinquency, between 11.7% and 9.3%.
Fighting for their survival, the chiefs of Chrysler LLC, General Motors Corp. (GM), and Ford Motor Co. (F) returned Friday to Capitol Hill to again ask lawmakers for as much as $34 billion in emergency aid. GM shares were lower Friday, while Ford shares were higher.
In other U.S. markets Friday, the 10-year note fell 1-12/32 to 109-01/32 for a yield of 2.7% and the 30-year was down 2-01/32 to 126-06/32 for a yield of 3.13%.
January NYMEX crude futures fell $1.83 to $41.84, following the U.S. employment report.
February gold futures were lower at $757.40.
Among other stocks in the news Friday, shares of Hartford Financial Group (HIG) more than doubled after the insurer raised its 2008 EPS guidance to $4.70-$4.90. Hartfod said its operating businesses continue to perform well in a challenging environment, reflecting strong underwriting in property-casualty operations and a sharpening of focus in its life insurance operations. Hartford also noted that the year-end capital outlook for its life and property-casualty operations remains strong.
TRW Automotive (TRW) withdrew its 2008 sales and EPS guidance. The company notes that in recent weeks and subsequent to providing the 2008 full-year guidance on Oct. 30, both actual and forecasted levels of vehicle production in global automotive markets have declined beyond previously forecasted levels.
Yum! Brands (YUM) says fourth quarter-to-date sales trends show system-sales growth of 19% in mainland China, up 8% in YRI (Yum Restaurant Intl.), both on a local currency basis, same-store-sales growth for system of up 4% in mainland China, up 4% in YRI, up 2% in the US (with US company same-store-sales growth of 3%). The company sees 2009 EPS growth of at least 10%, excluding special items.
Alete Inc. (ALE) said it expects 2009 EPS of $2.10-$2.35. The electrical-power generation company says that after 2009, it expects strong annual earnings growth for a number of years due to continuing investments in its utility rate base. Alete also said it expects to increase its dividend when its board of meets in January, 2009.
Brown-Forman (BFB) posted second-quarter EPS from continuing operations of 94 cents, vs. 83 cents one year earlier, on 4.6% higher sales. Due to an estimated 12 cents per share net gain on the expected sale of Bolla and Fontana Candida, the company increased its fiscal 2009 EPS guidance to $3.00-$3.20, which also includes expectation of maintaining year-to-date trends for Jack Daniel's, Southern Comfort, and Finlandia. The company's board also authorized the repurchase of up to $250 million of its outstanding Class A and B common shares over the next 12 months.
Sonoco Products (ALE) cut its fourth-quarter EPS forcast of 60 cents-64 cents to 48 cents-52 cents and its 2009 outlook from $2.36-$2.40 to $2.23-$2.27. The company says that its businesses that serve industrial markets are seeing much larger than expected decline in volume and reduced profitability due to significantly slowing global economic conditions. Sonoco will close about 15 plants globally and cut about 700 positions for a cost of about $29 million. Including projected impact of higher pension costs, the company sees 2009 base EPS of $1.95-$2.05; excluding higher pension costs, it sees base EPS of $2.25-$2.35.
Big Lots (BIG) reported third-quarter earnings per share from continuing operations of 15 cents, vs. 14 cents one year earlier, despite a 0.2% comparable-store sales decline and flat total sales. The retailer sees fourth-quarter EPS from continuing operations of 90 cents-99 cents on a comp-store sales decrease of about 2%-4%, and expects $1.79-$1.88 for fiscal 2009 on a comp-store sales rise of about 1%.
Rambus Inc. (RMBS) says, at its request, the U.S. International Trade Commission (ITC) has instituted an investigation regarding infringement of Rambus's patents by NVIDIA Corp. (NVDA) and other companies whose products incorporate the accused NVIDIA products.