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msnbc.com
updated 8/9/2004 7:12:51 AM ET 2004-08-09T11:12:51

Investors sold off stocks for a second straight day Friday, sending the market’s main indices to new lows for the year, as rising oil prices and a new report showing the economy created far fewer jobs than expected in July fanned fears about the strength of the U.S. economic recovery.

Major Market Indices

“The market has been falling for the past month and a half because of concern about a variety of risks: terrorism, oil, interest rates and the Fed, and prospects that the [economic] slowdown in June may or may not have carried over into July,” said Peter Boockvar, equity strategist at Miller Tabak.

“While the market is extremely weak today, it’s really more of the same and the downtrend continues. The payroll number just sent us over the edge,” he added.

Friday's jobs report said employers added only 32,000 workers to payrolls in July, while a consensus of Wall Street economists had looked for a payroll gain of well over 200,000.

It was the second month in a row that the monthly jobs figure fell sharply below expectations, and it raised worries on Wall Street about the overall strength of the economy. It also raised new doubts about what the Federal Reserve board of governors will do next week when it meets to discuss interest rates, analysts said. The Fed had widely been expected to raise rates by a quarter percentage point to 1.5 percent.

The disappointing jobs data came at the end of what has already been a terrible week for Wall Street, with stocks falling to new lows for the year because of concerns about very high crude oil prices.

The rising cost of oil, which has edged steadily higher this week and hit a record high Friday for the sixth consecutive trading session, rising to nearly $45 a barrel, was a main catalyst for Friday's stock market sell-off said Peter Cardillo, chief market analyst at New York brokerage S.W. Bach.

“The fear is that if oil prices go beyond $50 inflation could kick in and the Fed will have to fight a bigger battle when it comes to inflation, and they'll do that by becoming more aggressive on rates,” Cardillo said. “What we could use now is major reversal in oil prices — if we get that it might turn market psychology.”

Stocks held on to sharp losses throughout the session, with the Dow Jones industrial average closing down 147.70 points, or 1.5 percent, and the broader Standard & Poor’s 500-stock index finishing down 16.73 points, or 1.6 percent. The Nasdaq composite index, full of technology stocks, dropped 44.74 points, or 2.5 percent.

The Dow plunged to a new 2004 low Friday, while the Nasdaq composite and the S&P 500 index fell to new year-to-date lows for the second straight session. All three indices declined for the week, with the Dow losing 3.2 percent, the Nasdaq falling 5.6 percent and the S&P 500 dropping 3.4 percent. Video: Latest market news

The questions about what Fed policy makers might do do was reflected by a surge in demand for bonds, briefly pushing the interest rate on the benchmark 10-year note as low as 4.17 percent, a level not seen since the spring. Bond yields move in the opposite direction of their price.

Stocks closed much lower Thursday, after oil prices surged again to more than $44 a barrel. The Dow lost 163 points to record its second largest decline of the year and closed below 10,000 for the third time in 10 trading sessions.

The sell-off continued Friday, with stocks most sensitive to swings in the economy registering the largest losses on the Dow industrial average. Manufacturers United Technologies, 3M and Honeywell International were among the Dow’s biggest losers.

Other decliners included oil services company Halliburton, which faces accusations of accounting fraud in a new lawsuit brought by investors. The company’s shares fell 1.5 percent to $29.67.

Shares of General Motors also fell, sliding 2.5 percent to $41.49 following the company’s announcement Thursday that it was recalling all its Saturn Vue sport utility vehicles.

And stock in newspaper publisher Belo dropped 7.2 percent to $21.55, after the company reported that its Dallas Morning News had overstated its circulation.

The jobs report hit employment services stocks, with Internet jobs search company Monster Worldwide falling 10.8 percent to $17.93 and shares of Manpower, the world’s second-largest staffing company, dropping 5.4 percent to $39.73.

And Nvidia’s shares plunged 35.2 percent to $9.43 after it posted a sharply lower quarterly profit on Thursday, as sales of its graphics microprocessors declined.

Overseas, Japan’s Nikkei stock average closed Friday with a loss of 0.8 percent. In Europe, Britain’s FTSE 100 closed down 1.7 percent and France’s CAC-40 finished down 2.6 percent. Germany’s DAX index fell 2.7 percent.

Reuters and the Associated Press contributed to this report.

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