US Markets Trade Lower After Non-Farm News

Posted on | October 2, 2009 |

Stock markets were struck by a heavy bout of panic selling this afternoon, after US non-farm payrolls came in substantially worse than anticipated.

A Labour Department report showing US employers shed a more-than-expected 263,000 jobs in September dealt a devastating blow to stock market confidence today, knocking the Dow and S&P 500 down by nearly 1% during the first half hour of trading. The FTSE 100 also breached the 5000 level for the first time in more than two weeks.

In the meantime, the VIX volatility index climbed 4.2% to 29.47, and gold, which tends to attract buyers for its safe-haven qualities, relinquished earlier losses and climbed back up the $1000 an ounce level.

The drop in non-farm payrolls exceeded Bloomberg’s median estimates of a decline of 175,000 by 50% and took the US unemployment rate up to a 26-year high of 9.8% in September from 9.7% the month before. In total, September’s losses bring total jobs lost since the recession began in December 2007 to 7.2 million, that’s the biggest drop since the Great Depression.

Today’s non-farm report indicates the US economy is still faced with a serious macroeconomic issue, which may risk getting out hand – companies keep making redundancies to meet profit targets and to keep the market happy but doing so also comes at the cost of weaker consumer spending. Consequently, without healthy (sustainable) levels of spending, corporate revenues are likely to come under pressure and, eventually, when there’s no more meat to eat into, so will earnings.

US factory orders were also a disappointment, coming in 0.8% lower in August following a 1.3% gain the month before.

Much of the losses seen at the start of trading were beginning to narrow, with the Dow Jones Industrial Average down by only 22.97 points (-0.24%) to 9486.31, and the broader S&P 500 only 2.13 points (-0.21%) below its previous close at 1027.72, by 3:30pm (London time). The Nasdaq, meanwhile, managed to buck the trend and rise 7.41 points (+0.44%) to 1673.82, as a raft of broker upgrades encouraged investors to continue buying technology companies.

Apple was among the hot technology stocks today, up 2.2% to 184.46, after UBS upgraded the its stock from ‘neutral’ to ‘buy’, citing ‘higher iPhone expectations.’ Intel also benefited from an upgrade from Oppenheimer, which upped its rating on Intel’s stock from ‘market perform’ to ‘outperform’. In addition, DreamWorks Animation jumped 1.8% to $34.97 after Goldman Sachs added the company to its ‘conviction buy’ list. [1]

In contrast, some financials were back in negative territory, with Citigroup down 1.2% to $4.48, Wells Fargo 0.5% lower at $26.45 and PNC Financial 2.4% below its previous close at $45.22 after Keefe, Bruyette & Woods downgraded the US bank to ‘underperform.’ The broker raised its rating on BB&T US Bancorp to ‘outperform’, however. BB&T gained 5.3% to $26.88 and US Bancorp rose 1.9% to $21.51.

Elsewhere, Edge Petroleum tumbled 73% to $0.145 a share after filing for Chapter 11 bankruptcy protection.

Airline companies were also under pressure today after the European Union filed an antitrust complaint to AMR’s American Airlines, British Airways and Iberia over the carriers’ proposed trans-Atlantic alliance.

[1] Source: Bloomberg News (02 October 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

Comments