U.S. stocks slumped, wiping out the weekly gain for the Standard & Poor’s 500 Index, as a government report showing employment stagnated last month stoked concern the world’s largest economy may fall into a recession.
Caterpillar Inc. and FedEx Corp. retreated more than 3.5 percent, pacing losses among companies most-tied to economic growth. Financial stocks in the S&P 500 slumped 4 percent, the most within 10 industries. Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. tumbled at least 4.5 percent as the Federal Housing Finance Agency sued the lenders over residential mortgage-backed securities.
The S&P 500 declined 2.5 percent to 1,173.97 at 4 p.m. in New York, dropping 0.2 percent this week. All 10 of its main industries slid. The Dow Jones Industrial Average retreated 253.31 points, or 2.2 percent, to 11,240.26 today. The U.S. stock market will be closed Sept. 5 for a holiday.
“The jobs report was just ugly,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “We’ve been watching deceleration of economic activity on a global basis. Does that increase the odds of a recession? It’s a coin toss at this point, 50-50. This will probably push the Federal Reserve over the edge.”
The S&P 500 slid as much as 18 percent from a three-year high on April 29 amid concern the economy was weakening. The index fell 5.7 percent in August, for the biggest monthly drop since May 2010. Stocks trimmed losses at the end of last month as Federal Reserve Chairman Ben S. Bernanke said in an Aug. 26 speech in Jackson Hole, Wyoming, that the central bank has tools to stimulate growth without signaling he will use them.
Employment in the U.S. stagnated in August and the jobless rate held at 9.1 percent as American employers became less confident in the strength of the recovery.
Payrolls were unchanged last month, the weakest reading since September 2010, after an 85,000 gain in July that was less than initially estimated, Labor Department data showed. The median forecast in a Bloomberg News survey called for a gain of 68,000. Hourly earnings and hours worked both declined. The August data included a 48,000 drop in information industry jobs, mostly reflecting striking Verizon Communications Inc. workers.
“Another disappointing report that speaks to a severe unemployment crisis that, unfortunately, is becoming even more stubbornly embedded,” Mohamed A. El-Erian, the chief executive officer at Pacific Investment Management Co. in Newport Beach, California, wrote in an e-mail. Pimco is the world’s largest bond-fund manager. “Along with Europe’s dislocations, this fuels concerns about the global economic outlook and the growing risk of a recession.”
The Morgan Stanley Cyclical Index of companies most-tied to the economy slumped 3.5 percent. The Dow Jones Transportation Average, which is also considered a proxy for economic growth, decreased 3.4 percent. Caterpillar, the world’s largest construction and mining-equipment maker, slid 3.6 percent to $85.38. FedEx tumbled 4 percent to $74.90.
The KBW Bank Index fell 4.5 percent as all of its 24 stocks declined. In lawsuits filed today in Manhattan federal court, FHFA, representing Fannie Mae and Freddie Mac, also named as defendants Nomura Holdings Ltd., HSBC Holdings Plc and Credit Suisse Group AG.
The agency has been demanding refunds from banks for loans sold to Fannie Mae and Freddie Mac that were based on false or missing information about borrowers and properties. The two government-backed mortgage finance firms had to be rescued by taxpayers as defaults on home loans soared toward record levels.
Bank of America tumbled 8.3 percent to $7.25. Citigroup dropped 5.3 percent to $28.40. JPMorgan retreated 4.6 percent to $34.63. Goldman Sachs slumped 4.6 percent to $107.06.
“If in fact all that cash gets taken away in these lawsuits, you are crashing the American banking system,” Richard Bove, an analyst with Rochdale Securities LLC in Lutz, Florida, said in an interview on Bloomberg Television’s “InBusiness with Margaret Brennan” today. “If you make the assumption that over the next few years, all of these suits are going to be put in place and they’re all going to be won, you’re going to wipe out the American banking industry and you’re going to wipe out the American economy.”
Gauges of energy and raw-material producers in the S&P 500 sank at least 2.4 percent as the S&P GSCI Index of 24 commodities lost 1.3 percent. Chevron Corp. dropped 2.1 percent to $96.41, while Alcoa Inc. slid 3.6 percent to $12.04. Newmont Mining Corp., the largest U.S. gold producer, added 3.2 percent to $64.47 after gold jumped amid demand for haven assets.
Bearish bets against the S&P 500 rose to a nine-month high as short sellers increased speculation stocks may decline amid concerns over the strength of global economic growth.
The proportion of S&P 500 shares outstanding sold short on Aug. 29 rose to 3.03 percent, the most since the end of November and up from 2.37 percent at the beginning of August, according to New York-based Data Explorers, which provides research on short sales and stock lending. Short selling of the gauge reached a three-year high of 5.52 percent in August 2008, before the worst financial crisis since the 1930s drove the stock index to a 12-year low in March 2009.
Short selling increased in August after S&P downgraded the U.S. government’s credit rating and yields on Greek debt surged to record highs. Investors made bearish wagers on equities and shifted holdings to havens such as Treasuries, which posted the highest returns since December 2008.
“We’ve had inadequate policy responses to the problem of too much debt, and that makes people concerned,” Mark Travis, chief executive officer of Jacksonville Beach, Florida-based Intrepid Capital Management Inc., said in a telephone interview. “Investors and advisers are doing more now on the short side to protect their capital and they’re trying to find alternatives to flat market returns,” said Travis, who manages $1.3 billion and uses short selling as an investment strategy.