Stocks End Mixed after Dismal Jobs Report

A bigger-than-expected drop in nonfarm payrolls weighed on blue chips while commodity issues led the broader market higher

U.S. stocks ended mixed on Friday, giving back much of the bounce from the day's lows sparked by a worse-than-expected jobs report that confirmed fears that the U.S. economy is in a recession. The latest data completes three consecutive months of job losses and adds to economic concerns stirred by a minimal rise in non-manufacturing activity in March.

The Dow Jones Industrial Average closed 16.61 points, or 0.13%, lower at 12,609.42. The S&P 500 index inched up 1.09 points, or 0.08%, to trade at 1,370.40. The Nasdaq composite index rose 7.68 points, or 0.32%, to 2,370.98.

Stocks came off their earlier highs or reversed into negative territory as profit taking in the blue-chip sector dragged the benchmark index lower into the closing bell, S&P MarketScope said. On the New York Stock Exchange, 17 stocks traded higher for every 14 that fell, while on the Nasdaq, the ratio was 15-14 positive amid active trading.

Resurgent strength in commodities, which are less vulnerable to a weaker U.S. economy due to global demand, led the equities markets higher for much of the day. A more-than-$2.00 gain in oil prices boosted energy stocks, stronger agricultural commodity prices gave a big push to fertilizer producer Mosaic Company (MOS) and higher metals prices buoyed stocks such as Southern Copper (PCU). Another beneficiary of the metals rally was United States Steel Corp. (X), which climbed 2.0% to reach a new 52-week high.

"The weaker economic news drove bond yields down and made it more likely that the Fed is going to cut [interest rates] and cut more aggressively," says Richard Campagna, managing director of Provident Investment Counsel in Pasadena, Calif. "That hurts the dollar, which helps commodities, which led commodity-related stocks higher."

On the other hand, sectors that normally lead the economy out of recession, such as consumer discretionary and financial names, were the worst performers on Friday, Campagna says. "That makes sense with bonds [yields] being weak and people worried about the economy," he says.

The number the markets had been anxiously awaiting all week sealed a sense of gloom about the economic outlook on Wall Street. Nonfarm payrolls dropped 80,000 in March -- more than the 50,000 decline that was expected -- while the unemployment rate rose to 5.1% from 4.8% in February. This was the largest jobs decline since March 2003 and the highest unemployment rate since September 2005.

Compounding the bad news were downward revisions in the payroll figures for January and February, which totaled 67,000 for the two months. All together, the U.S. economy lost 232,000 jobs in the first quarter of 2008.

John Ryding, Bear Stearns' chief U.S. economist declared in an email report that the labor market was sending "clear and unmistakable recession signals." A rise in the unemployment rate of as much as 0.7% from its low a year ago "has never occurred in the post-war period without the economy being in recession," he said. He also cited the decline in private payrolls for four consecutive months as further evidence of a recession.

The size of the monthly job losses will continue to grow if previous recessions are any indication, says Jack Bauer, senior economist and analyst at Manning & Napier Advisors in Rochester, N.Y.

"You don’t normally stop at 80,000," he says. Historic charts show that the economy can lose as many as 200,000 jobs per month when a recession bottoms out, so the trend in payrolls will probably continue to deteriorate for the next one or two quarters, he says.

Bauer says he believes the predictions of a turnaround in the economy in the second half of 2008 are a little overly optimistic. However, if the recession is already into its third or fourth month, the summer may not be too early to see financial markets start to recover, as financial markets typically rebound a few months ahead of the economy as a whole, he added.

Next week brings a new wave of economic figures which the markets will use to gauge just how much the economy has slowed. Economists and investors want to see if the February report on pending sales of existing homes, due out on Tuesday, will show that home demand is stabilizing, while Thursday’s trade report for February will demonstrate the extent of foreign exports' support for economic growth in the first quarter.

Earnings season also kicks off next week with Alcoa Inc.'s (AA) results on Monday.

While he thinks the markets have gotten through the worst of the financial crisis and he sees the market moving higher, Campagna at Provident says he expects some consolidation in equities next week after they got a little overbought this week. With earnings coming out, all it will take are a few negative pre-announcements to spark more selling.

"I've got to believe people will digest the payroll numbers over the weekend and say 'Hey, wait a minute,' especially if they see some gloomy earnings pre-announcements, he says. He'd prefer to see the S&P 500 Index take a stab at the difficult 1,400 level after spending some time around 1,350 than from the current 1,370 level.

Auto supplier Delphi Corp.'s plan to emerge from bankruptcy suffered a setback on Friday when a group of investors led by hedge fund Appaloosa Management LP said it was pulling a planned $2.55 billion equity investment in the company.

In an April 4 termination letter filed with the Securities and Exchange Commission, the group accused Delphi of violating several terms of the agreement and said investors are entitled to an $82.5 million "alternate transaction fee." Delphi countered that it met the conditions of the reorganization plan, including obtaining $6.1 billion in exit financing.

Oil futures got a boost from low refinery rates in the past week and unexpected production shutdowns. The gains were surprising, however, in light of the weak jobs report, as prospects for weaker demand for oil has typically weighed on prices, Action Economics said.

On NYMEX, May crude futures settled $2.01 higher at $106.23 per barrel, driven mainly by fund buying. A big decline in U.S. gasoline supplies last week may be one reason for the gains, CNBC Business News said. With the weekend approaching, however, the area around $106 could be a top given the potential for profit-taking related selling through the afternoon session, Action Economics said.

Among the other stocks in the news on Friday, Massey Energy (MEE) shares rose 18.2% on news that its board approved an additional $90 million in capital spending for 2008 to accelerate expansion projects. The company projected average produced coal revenue of $55.50 to $56.00 per ton in the first quarter and expects its average operating cash cost to be $45.00 to $46.00 per ton.

Shares of the Mosaic gained 10.1% after the company reported third-quarter earnings of $1.17 per share, vs. 10 cents a year ago, on a 68% jump in revenue. The fertilizer and animal feed producer said the environment for its core phosphate and potash businesses looks extraordinary despite recent turbulence in commodity markets.

DemandTec (DMAN) shares dropped 23.0% after the software company posted a net loss of four cents per share for the fourth quarter on a GAAP basis, vs. a loss of 24 cents a year ago, on a 42% increase in revenue. William Blair downgraded the stock to market perform from outperform, citing concerns about DemandTec's exposure to the U.S. retail market.

European stock markets traded higher on Friday. In London, the FTSE 100 index advanced 0.95% to 5,947.10. In Paris, the CAC 40 index was up 0.27% at 4,900.88. Germany’s DAX index climbed 0.32% to 6,763.39.

Asian markets ended mixed on Friday. Japan’s Nikkei 225 index slid 0.72% to 13,293.22. The Hang Seng index in Hong Kong rose 1.64% to 24,264.63.

Treasury market

Treasury bonds strengthened on the perception that the Fed will cut interest rates by 50 basis points at its April 30 policy meeting after seeing the March nonfarm payrolls data, S&P MarketScope said. The 10-year note climbed 29/32 to 100-08/32 for a yield of 3.47%, while the 30-year bond rose 1-05/32 to 101-01/32 for a yield of 4.31%.

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