Wall Street's explosive Thursday rally fizzled Friday as a drumbeat of bad news--including a bleak jobs report and the bankruptcy of California's biggest utility--spooked investors once again.
"The Lord giveth and the Lord taketh away," said Ned Riley, chief investment strategist at State Street Global Advisors.
Thursday's near-record 8.9% run-up in the Nasdaq composite index and 402-point gain in the Dow Jones industrial average were followed by heavy selling early Friday after the government reported the U.S. economy had shed jobs in March at the fastest rate in nearly a decade--raising fears the nation's 10-year economic expansion could be headed toward recession.
The Nasdaq composite index fell 64.64 points, or 3.6%, to 1,720.36 and the Dow Jones industrial average sank 126.96 points, or 1.3%, to 9,791.09.
The broader Standard & Poor's 500 index fell 23.01 points, or 2%, to 1,128.43 and is down 14.5% for the year. Both the S&P 500--the benchmark most often used to gauge the health of U.S. markets--and the Nasdaq are deep within bear territory, defined as a drop of 20% or more from a market's peak.
On the New York Stock Exchange, losers outnumbered winners by 7 to 3. On the Nasdaq, losers were ahead 2 to 1. Trading was moderate--well below Thursday's heavy volume.
"A lot of traders made a lot of profits [Thursday] and they are taking those profits. They were not making long-term investments," said Alfred Kugel, investment strategist at fund manager Stein, Roe & Farnham.
Even with Thursday's big rally, all three major indexes were down for the week. The Nasdaq slid 6.5%, the S&P 500 lost 2.8%, and the Dow ended the week off 0.9%. Both the Nasdaq and S&P 500 have fallen nine out of the last 10 weeks, and over that time the Nasdaq has lost 38%--almost as much as last year's record 39% plunge.
The theme of Friday's sell-off--as it has been for much of the current bear market--was the growing economic slowdown.
On the corporate front, network-testing equipment maker Agilent Technologies, communications equipment maker Tellabs and Internet gear maker Sycamore Networks added their names to the litany of companies warning of disappointing quarterly results.
Recession worries were further heightened after PG&E Corp.'s Pacific Gas & Electric Co. unit, California's largest investor-owned utility, filed for bankruptcy protection.
And then there was the Labor Department's March jobs report, which showed a decline of 86,000 in nonfarm payroll jobs versus an expected increase of 58,000 jobs in March. The unemployment rate matched expectations for a rise to 4.3%, but was the highest since mid-1999.
Labor Secretary Elaine Chao, when asked if the March data implied a greater risk of recession, told reporters, "Yes, these figures do indeed indicate that.
"I think this economy is like the Pillsbury Doughboy, it continues to soften," she said, using the analogy of the cartoon-type figure used in advertisements.
But it was an open question whether the Federal Reserve would slash interest rates again before its May 15 meeting to lift the flagging economy.
Leading Wall Street firms, worried that the U.S. economy is flirting with recession, put the chances of a Federal Reserve interest rate cut before the meeting at nearly 1 in 2 in a new Reuters poll.
But there was almost complete certainty among the 25 primary dealers of U.S. government securities polled that key short-term interest rates will be half a percentage point lower by the end of the May Fed meeting. Indeed, bonds rallied strongly Friday. The yield on the benchmark 10-year Treasury note, an indicator of the direction of interest rates, fell from 4.97% on Thursday to 4.88%.
On the earnings front--the source of much of the market's woes this year--Tellabs cut its first-quarter guidance for the second time, while Sycamore Networks warned it will report a third-quarter loss because of weak orders. Tellabs fell $7 to $33.75, and Sycamore lost $1.81 to $7.25.
Agilent lost $2.82 to $27.80 after it said orders from major customers dropped sharply in the last four to six weeks. And consumer electronics retailer RadioShack fell $10.20 to $28.30 after it said a moderation in sales growth would cause earnings to miss estimates.
"People are bracing themselves for a slide now," said John Forelli, senior vice president at Independence Investment Associates, which oversees $20 billion. "Every piece of data that comes is pushing off the possibility of a second-half economic recovery and then it becomes a fourth-quarter recovery. The further it gets pushed out, the less likely people are going to step up to the plate and buy."
Market Roundup: C4-5