Stocks got slammed in extremely light trading Thursday following the employment report, which revealed more weakness for job trends ahead of the long July 4 holiday weekend.
For June, nonfarm payrolls fell 467,000, much worse than the 358,000 job-loss figure that the markets were looking for, and the unemployment rate rose to 9.5% from 9.4%. Hourly earnings were unchanged. Action Economics said the report was weaker than expected due to a drop in the workweek to a new low of 33.0 hours from 33.1 over the last three months, and an associated big 0.8% drop in the hours-worked index. The mix left a hefty 7.9% rate of decline for hours-worked in the second quarter overall that followed prior contraction rates of 8.9% in the first quarter and 7.4% in the fourth quarter. Action Economics said it has revised down its second quarter GDP estimate to a decline of 2.5% from a drop of 2.0%.
In the weekly update, initial jobless claims fell 16,000 to 614,000, while continuing claims fell 53,00 to 6,702,000. U.S. Factory Orders jumped 1.2% in May from a revised 0.5% increase in April (previously 0.7%) and better than the 0.8% that markets expected.
Trading on the New York Stock Exchange remained open beyond the usual 4 p.m. ET market close to 4:15 p.m. Thursday "in order to execute customer orders impacted by system irregularities," according to the NYSE. Larry Liebowitz, head of U.S. markets at the NYSE, said on CNBC that the exchange experienced a series of "network problems" that prevented communication of orders. He said trading hours were extended to make sure all disrupted orders could be completed.
On Thursday, the 30-stock Dow Jones industrial average finished the session down 223.32 points, or 2.63%, to 8,280.74. The broad Standard & Poor's 500-stock index declined 26.91 points, or 2.91%, to 896.42. The tech-heavy Nasdaq composite index lost 49.20 points, or 2.67%, to 1,796.52.
Treasuries moved higher in price, sending yields lower in the wake of the employment report and "reinsterted some fresh qualms about the recovery," said Action Economics. The 10-year note yield fell to 3.495%. Among other news, the European Central Bank left its key interest rate unchanged at 1% at today's policy meeting.
The dollar index was up 0.54 to 80.17 as a Japanese finance ministry official said the dollar remains the key currency, adding that it will keep investing most reserves in dollars. Also, China's Vice Foreign Minister says that the USD is the main global reserve currency, in comments reported on Reuters this session, with the minister stating that he has not heard of the China request for a reserve currency debate.
In the commodities markets, NYMEX crude oil eased $2.37 to $66.94 per barrel as the employment data suggested the economic recovery would be slow, which theoretically could reduce demand for oil. On Wednesday, the Dept. of Energy yesterday said U.S. fuel demand fell 5.8% year-over-year in the four weeks ended June 26. Gold fell $10.20 to $931.10.
The U.S. markets will be closed on Friday, July 3 in observance of Independence Day.
Next week, the bond market will get a flood of supply as the Treasury could sell over $170 billion in bills, notes, bonds, and TIPS (assuming a $35 billion 4-week bill auction), says Action Economics. For the first time ever, the debt managers will conduct 4 coupon/TIPS offerings, says Action Economics. Monday's ISM Non-Manufacturing index highlights the data calendar. The rest of the week is very light until Friday when trade, import and export prices, and consumer sentiment will be released. Other factors that will influence trading are the start of earnings season, and the G8 meeting, says Action Economics.
Among stocks in the news Thursday, the WSJ reported that GM is aiming for an IPO next year. Auto parts maker Lear (LEA) said it is preparing to file for bankruptcy.
Sepracor (SEPR) shares tumbled after the company said it has determined that the preliminary results of a Phase II, 514-patient study evaluating efficacy and safety of SEP-225289 for treatment of Major Depressive Disorder, including patients with melancholic and atypical features, did not meet the primary efficacy endpoint, which was a reduction in symptoms of depression following eight weeks of treatment. S&P and Deutsche Bank downgraded the stock.
Illumina (ILMN) expects second quarter revenue of about $161 million, compared to guidance of $168-$173 million. It cites a shortfall in its array business. Given fourth quarter upside opportunities related to stimulus funding, offset by near-term weakness in the array business, ILMN says it is resetting its 2009 outlook to original range it provided entering the year of $690-$720 million.
Airline stocks lost ground on worries that the weak employment market could lead to consumers cutting back on travel plans. Morgan Stanley downgraded Southwest (LUV) to underweight from equal weight, and lowered Hawaiian Holdings (HA) to equal weight from overweight. But Morgan Stanley also upgraded Continental Airlines (CAL) to overweight from equal weight and resumed coverage on Delta (DAL) with overweight.
There was some M&A news Thursday. Elan (ELN) and Johnson & Johnson (JNJ) announced a definitive agreement whereby JNJ will buy all of ELN's assets and rights related to its Alzheimer's Immunotherapy Program (AIP). Also, through an affiliate, JNJ will invest $1 billion in ELN in exchange for 18.4% of ELN shares. Upon closing, set for the second quarter 2009, the deal will have an estimated dilutive impact of $0.02 to $0.03 on JNJ's 2009 adjusted EPS.
Exelon (EXC) raised its hostile bid for NRG Energy (NRG) to $7.45 billion.
Flagstone Reinsurance Holdings (FSR) offered to acquire all outstanding IPC Holdings (IPCR) shares. The offer includes exchange of 2.638 new common shares per IPCR share held, plus $5.50 in cash per share, for total consideration of $33.62 per IPCR share (based on yesterday's closing price). FSR says its offer is superior to the pending offer made by Validus (VR), which it reaffirms today and consists of $3.75 in cash and 1.1234 VR voting common shares for each IPCR common share, for total consideration of $28.86 based on VR's closing price on July 1.
American International Group (AIG) agreed to sell 100% of its ownership interests in Inversora Pichincha S.A. and Interdinco S.A., which comprise AIG's consumer finance operations in Colombia, to Banco Pichincha C.A. of Ecuador and other parties. Terms of the transaction were not disclosed. In addition, it says it has closed the sale of 21st Century Insurance Group, the wholly owned subsidiaries of AIG's U.S. personal auto insurance business, to Farmers Group, Inc., a subsidiary of Zurich, for $1.9 billion.
Acura Pharmaceuticals (ACUR) and King Pharmaceuticals say the FDA has issued a Complete Response Letter regarding the New Drug Application (NDA) for their Acurox Tablets CII, an immediate release product intended for the relief of moderate-to-severe pain. They say the letter raises issues about the potential abuse deterrent benefits of Acurox. Cos say they are currently evaluating the letter, and at this stage believe they can respond to the issues raised without conducting any additional studies.