Wall Street Pulls a U-Turn

A weak jobs report scared investors Friday, one day after a strong rally

Stocks were punished on Friday, Apr. 6, one day after a powerful rally. The chief culprit: a weaker-than-expected jobs report.

The March employment report showed that U.S. nonfarm payrolls fell by 86,000 after rising 140,000 in February while the unemployment rate rose to 4.3%, up from 4.2%. The payroll decline is the lowest since November 1991. Some called the data a sign that the Fed will not ease before its next policy meeting in May, but most agreed the Fed will continue cutting interest rates as the potential of recession rises.

The latest jobs report disappointed investors because it "did not confirm a firmer economy," Ned Riley, chief investment strategist at State Street Global Advisors told S&P's AdvisorInsight. He noted that the employment data showed the economy is "probably deteriorating" in areas like the service sector, which had been "relatively immune to this overall slowdown."

With the hefty gains made Thursday, investors were bound to do some profit-taking, says Dan Veru, executive vice president of Palisade Capital, a money managment firm. "This was a vacumn type liftoff, where there was no more selling and perhpas some short covering going on."

On top of the lousy economic data, Pacific Gas & Electric Co., a subsidiary of PG&E Corp.(PCG ), California's largest investor-owned utility, filed for bankruptcy protection amid the state's power crisis. The news pressured the market as Wall Street tried to figure out the repercussions of the filing, though comments from the parent company's chairman helped to restore some stability to stocks. Trading in PG&E shares was halted for much of the afternoon.

"This latest development, combined with the ongoing volatility in the broader market, has made investing in this arena quite difficult over the past six months. Given the political climate out west... it will likely remain 'choppy waters' near-term," Ron Barone, a utilities analyst with UBS PaineWebber, wrote in a research note.

Investors Friday also took their cue from the latest series of profit warnings from the likes of Internet equipment maker Sycamore Networks (SCMR ), communications equipment maker Tellabs and network testing equipment maker Agilent (A ). Technology earnings cautions have weighed on the market for the last several weeks, creating uncertainty and volatile trading.

Another big-name tech company was punished, but for a different reason. Motorola (MOT ) shares tumbled following a published report indicating the mobile phone giant might soon face liquidity problem related to its outstanding commercial paper. Motorola strongly denied the report, and the shares staged a partial recovery.

It was quite a diffrent outcome from the previous session. Stocks Thursday soared on the heels of good news from brand-name tech companies. PC maker Dell (DELL ) confirmed that it will meet lowered first quarter estimates, as opposed to guiding even lower. Also contributing to the gains was an upbeat comment by a Lehman Brothers analyst on Yahoo! (YHOO ).

On Friday, the Dow Jones Industrial Average fell 126.96 points, or 1.28%, at 9,791.09. The Nasdaq composite was down 64.61 points, or 3.62%, at 1,720.39. And the Standard & Poor's 500 index, a broad stocks gauge, was down 23.01 points, or 2.00%, to 1,128.43.

Treasury Market

U.S. treasuries ended higher on weakness in the equities markets and lackluster data from the March jobs report.

In other economic news, Dallas Federal Reserve President Robert McTeer said at a conference on manufacturing that U.S. growth is currently running above zero. McTeer added that gross domestic product for the first quarter may be a little above or a little below zero.

Stocks in the News

Hyperion Solutions (HYSL )said it sees a third-quarter loss of $0.04 per share to a $0.01 EPS, on $122 million to $127 million in revenues due to a slowdown in the U.S. economy. Goldman Sachs reportedly cut estimates.

Starbucks coffee shop chain (SBUX ) posted 5% higher same store sales in March. The company said it is on track to achieve aggressive growth goals of $0.91 to $0.93 EPS in fiscal 2001.

Radioshack Corp. (RSH ), electronics retailer, lowered its first quarter outlook, saying it sees first quarter EPS of $0.31 to $0.33, compared with last year's $0.34. It sees 2001 EPS growth of 7% to 10%.

World Markets

Stocks in Europe ended lower as profit warnings and a weak U.S. jobs report squashed hopes of market rallies there. The Financial Times-Stock Exchange 100 index closed down 20.30 points,or 0.36%, to 5,601.50. In Germany, the DAX Index fell 74.46 points, or 1.29%, to 5,139.71. In France, the CAC 40 ended down 18.85 points, or 0.37%, to 5,139.71.

Asian markets finished mixed. Japan's Nikkei 225 Index gained 2.38 points, or 0.02%, to close at 13,383.76 while Hong Kong's Hang Seng Index added 322.90 points, or 2.68%, to close at 12,386.61.

By Amy Tsao in New York

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