updated 7/6/2004 7:10:52 AM ET 2004-07-06T11:10:52

Wall Street ended a busy week on a sour note Friday, as a sharp slump in the pace of U.S. job hiring last month raised some concerns about the strength of the economic recovery.

Major Market Indices

The government’s payrolls report for June, released before Friday’s open, showed the pace of U.S. hiring slumped sharply in June after several months of robust gains. Employers added only 112,000 jobs, far fewer than the 250,000 most Wall Street analysts had anticipated and barely keeping up with labor force growth. The nation’s unemployment rate remained unchanged at 5.6 percent.

After three months of strong employment growth, the latest report was a letdown for investors. But many found reasons to be cheerful, pointing out that less jobs means weaker demand for goods and less pricing pressure, and that labor costs are still somewhat low, which could also help to keep inflation at bay, keeping interest rates low.

“Obviously, the jobs report was a disappointment, but I don’t think it was all that bad,” said Peter Cardillo, chief market strategist at investment brokerage SW Bach, noting that the weaker-than-expected data may mean the Federal Reserve can take a measured approach to raising interest rates, something that will ultimately benefit stock prices.

“I think the real reason why the stock market is down today is we have a long holiday weekend ahead of us,” Cardillo said. “No one is willing to make a commitment to stocks over a long weekend and so the weak employment numbers have given everyone an excuse not to participate and traders have unloaded their positions.”

Other market professionals were willing to look on the bright side of the jobs data. Jeffrey Kleintop, chief investment strategist at PNC Advisors, said the report was probably attributable to volatility sometimes seen in employment data from month to month.

“Stocks are stalled because of macro concerns,” he told CNBC, adding that investors are worried about the outcome of November’s presidential election and the Federal Reserve’s interest-rate strategy, which is likely to be influenced by the inflationary outlook.

Stock indices spent most of the day in negative territory, with the Dow Jones industrial average closing with a loss of 51.33 points, or 0.5 percent, and the broader Standard & Poor’s 500-stock index finishing down 3.56 points, or 0.3 percent. The tech-rich Nasdaq composite index was off 8.89 points, or 0.4 percent, at the close.

Attention turning to earnings
Friday’s dour session brings to an end an important trading week.

On Monday, two days ahead of schedule, the U.S. occupying authority in Iraq formally ended 14 months of occupation, handing over sovereignty to an interim Iraqi government. And on Wednesday the Federal Reserve raised its benchmark interest rate for the first time in four years, officially signaling that a remarkable period of historically-low interest rates is coming to an end.

Video: Latest market news

The stock market took both events, which had kept traders on tenterhooks for weeks, in its stride. Monday’s power handover came early in an apparent attempt to forestall any guerrilla attacks by insurgents, while Alan Greenspan and other top Fed officials had telegraphed their intention to start a credit-tightening cycle months in advance.

Over the next two weeks, Wall Street will shift its attention from the Fed to the coming flood of second-quarter earnings reports said Peter Cardillo. Overall, second-quarter earnings are expected to be robust, with companies in the Standard & Poor’s 500-stock index forecast to report earnings growth of over 20 percent for a fourth straight quarter according to earnings research firm Thomson Financial/First Call.

“We are in a technical rut here and we’ll stay in a trading range for a week or so until second-quarter earnings season starts in mid-July,” Cardillo said.

The calendar of economic data next week is light, with only second-tier reports scheduled for release, including data on chain store sales and the Institute for Supply Management’s index of business activity in the U.S. services sector in June. U.S. financial markets will be closed Monday in observance of the Independence Day holiday.

Apple sets new iMac release
In Friday’s company news, shares of Apple Computer slid 3.8 percent to $31.08 after the computer maker said the debut of its new iMac personal computer would be delayed until September , forcing the company to miss the lucrative back-to-school sales season.

Microsoft continued its costly settlement of class-action lawsuits around the nation. The software giant said late Thursday it would pay up to $241.4 million to settle a class-action case in Minnesota . The software firm’s shares fell a fraction to $28.57.

(MSNBC is a Microsoft-NBC joint venture.)

And shares of Caremark Rx, the nation’s second-largest pharmaceutical benefits management company, fell 3.7 percent to $31 after it said that 19 states are investigating the company over its business practices.

Scott Lynch, managing director of U.S. trading at CSFB, said fears of a slower economy hit cyclical stocks, such as chemicals, aluminum and heavy machinery companies, which tend to fall when the economy is doing poorly. “The [employment] numbers this morning weren’t as robust as people thought and that’s spilling over into the cyclicals,” he said

However, hopes for a slow rise in interest rates lifted housing stocks like homebuilder and mortgage company Centex, Los Angeles-based homebuilder KB Home and Michigan-based homebuilder Pulte Homes.

Overseas, Japan’s Nikkei stock average dropped 1.5 percent. In Europe, Britain’s FTSE 100 closed down 0.4 percent, France’s CAC-40 lost 0.8 percent and Germany’s DAX index fell 0.9 percent.

Reuters and the Associated Press contributed to this report.


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