The stock market suffered its worst day of the year yesterday after a surprisingly weak report about hiring and employment cast a pall of gloom over the US economy. The Dow Jones industrial average plunged 275 points. Traders stampeded into the safety of bonds, pushing the yield on the benchmark ten-year Treasury note to a record low. Fearful investors bought gold, causing the price to spike nearly US$60 an ounce, and concern about a global economic slowdown drove the price of oil to its lowest since October.
"The big worry now is that this economic slowdown is widening and accelerating," said Sam Stovall, chief equity strategist at S&P Capital IQ, a market research firm. It was the Dow's steepest one-day drop since November. The Standard & Poor's 500 index and Nasdaq composite index both fell more than three per cent. The Nasdaq has dropped more than ten per cent since its peak-what traders call a market correction. The S&P 500 is just a point above correction territory.
American employers added just 69,000 jobs in May, the fewest in a year, and the unemployment rate increased to 8.2 per cent from 8.1 per cent. Economists had forecast a gain of 158,000 jobs. The report, considered the most important economic indicator each month, also said that hiring in March and April was considerably weaker than originally thought.
The Dow closed down 274.88 points, or 2.2 per cent, at 12,118.57. The Dow is off 0.8 per cent for the year; two months ago, it was up more than eight per cent for the year. The Standard & Poor's 500 index fell 32.29 points, or 2.5 per cent, to 1,278.04. The Nasdaq dropped 79.86, or 2.8 per cent, to 2,747.48. Both indexes are still up for the year-1.6 per cent for the S&P 500 and 5.5 per cent for the Nasdaq.
Traders sold all types of risky investments and rushed to the safety of US government bonds and gold. Bond prices rose sharply, briefly pushing the yield on the benchmark ten-year U.S. Treasury note down to 1.44 per cent, the lowest on record. The yield ended the day at 1.46 per cent. Gold for August delivery climbed US$57.90, nearly four per cent, to US$1,622.10 per ounce.
May was the worst month for the stock market in two years by some measures. Investors' worries about Europe's debt crisis intensified as the month wore on. Greece's political future is uncertain, and it appears increasingly likely to stop using the euro currency. That could rattle financial markets and make Greece's economy-already hobbled-even weaker.
Several analysts raised the possibility that the weakening economy will prompt more action by governments and central banks seeking to juice global economic activity. Anticipation of some policy response prevented even deeper losses, Stovall said.
The Federal Reserve undertook programmes in 2009 and 2010 to buy US government bonds. Its goal was to lower interest rates and encourage people to buy riskier investments like stocks. At least in public, the central bank so far has resisted a third round of purchases, known as quantitative easing.
Anticipation of bond-buying by the Fed "might put in a little bit of a floor to the market, but the overall economic picture is still bad," said Bob Gelfond, CEO of MQS Asset Management, a New York hedge fund. The dollar fell partly because traders expect more intervention by the Federal Reserve, Gelfond said.
The euro rose half a penny against the dollar to above US$1.24. A day earlier, fears about Europe's finances had pushed the euro to a nearly two-year low against the dollar. Only 17 of the 500 companies in the S&P index were higher for the day.
Stocks closed way down in Europe. Greece's benchmark stock index fell 4.4 per cent, Germany's 3.4 per cent and France's 2.2 per cent.
