Labor Pains for Stocks

The latest jobs report stoked worries about the strength of the economic recovery. Next week's main focus: The Fed's policy meeting

Stocks lost ground Friday as the weak April employment report sparked concern about the strength of the economic recovery. Semiconductor, pharmaceutical, bank, and telecom stocks were the biggest drags on the market.

The Dow Jones industrial average fell 85.30 points, or 0.85%, to 10,006.63, with Microsoft (MSFT ), Intel (INTC ), and Wal-Mart (WMT ) among the big losers.

Meanwhile, familiar large-cap tech names pushed the Nasdaq Composite down 31.79 points, or 1.93%, to 1,613.03. The broader Standard & Poor's 500 index was off 11.13 points, or 1.03%, to 1,073.43.

The U.S. economy added just 43,000 jobs in April, a bit below estimates, while the gain previously reported for March was revised to a 21,000 decline. The unemployment rate rose to 6.0% from 5.7%, above the 5.8% consensus forecast. The unemployment rate is now at the highest level in eight years. Hourly earnings rose just 0.1% and the workweek shortened to 34.1 hours.

The downward revision of March payrolls and the jump in the unemployment rate suggest the second quarter could be weaker than previously expected, and are further reasons for the Fed to keep monetary policy on hold, according to economists at S&P.

Next week starts off without any economic news until Tuesday, when the Federal Open Market Committee meets to determine interest rate policy. Most economists expect the Fed to keep rates steady until late summer.

Also coming the day of the FOMC meeting will be the productivity report, wholesale trade figures, and consumer credit. On Thursday, import/export prices and weekly jobless claims data will be reported. Friday rounds the week with the producer price index (PPI), a measure of inflation at the wholesale level, and bank credit.

On the earnings front, some companies scheduled to report quarterly results next week include Cisco Systems (CSCO ) on Tuesday, Watson Pharmaceuticals (WPI ) on Wednesday, and Loews (LTR ) on Thursday.

Tech stocks were under pressure Friday as investors continued to fret about whether the group would lead the market higher if the economy becomes stronger. Airline stocks were lower amid news of a bomb scare at Cleveland's airport. Meanwhile, precious metals and forest products stocks rallied as investors shifted into defensive areas.

Among stocks on the move Friday, software maker Oracle (ORCL ) slumped after Goldman Sachs cut its earnings estimates, but kept its market outperform rating. Analyst Rick Sherlund says Wall Street estimates have been coming down for Oracle as investors bake in lower expectations for the May quarter following the slower tone of business shown by other tech companies in the March quarter.

Starbucks (SBUX ) shares rose after reporting 8% higher April same-store sales, and 26% higher total sales.

Medical devices maker Guidant (GDT ) announced FDA approval of the company's Contak CD/Easytrak system for treatment of heart failure.

The earnings docket, meanwhile, was fairly light. American Power Conversion (APCC ) reported first quarter EPS of $0.08 on a 16% revenue decline, and said IT spending, particularly within the corporate environment, continues to lack signs of near-term improvement.

Treasury Market

Treasuries ended higher in a bid to safety. After initial gyrations from the payrolls release, the bigger than expected jump in the employment rate, along with slumping stocks, helped the Treasury bid. Indeed, the entire curve finished in the green to end another positive week, says S&P MMS.

The dollar was notably lower against other currencies on the employment report news.

In other economic news, a gauge of activity in the services sector in April was also weaker than forecast. The Institute of Supply Management non-manufacturing index dipped to 55.3 in April from 57.3 in March. It was expected to show a slight increase in activity, registering a reading of 57.5. Any number above 50 signals an expansion. April orders rose a bit to 56.4 from 54.9, while prices jumped to 59.5 from 53.0. The data are likely to remain supportive for Treasuries, especially shorter dated instruments, says S&P MMS.

World Markets

European stock markets were mostly lower, after trading higher earlier on positive earnings news from companies such as BP Plc and Volkswagen AG. But Vodafone Group Plc (VOD ) was notably lower after the telecom company cut profit forecasts for its Italian and German wireless units.

London's FTSE 100 finished with a gain of 29 points, or 0.56%, to 5,203.10. France's CAC 40 Index fell 66.64 points, or 1.51%, to 4,354.92. Germany's DAX Index lost 69.83 points, or 1.41%, to 4,894.73.

Asian stocks finished higher. Japanese markets were closed Friday for Constitiution Memorial Day. They will also be closed Monday for Children's Day. On Thursday, the Nikkei 225 Index was off 1.78 points, or 0.02%, to 11,551.01. Hong Kong's Hang Seng Index rose 17.11 points, or 0.15%, to 11,797.22 on Friday.

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