US Market shrugs off weak job report

Dow closes substantially up though unemployment reaches fifteen year high

The US Market registered modest losses for the week that ended on Friday, 05 December, 2008. The indices would have registered fair gains if not for the huge losses that it registered at the very first day of the week, Monday, 1 December. But the best part was, despite some of the worst jobs data in decades, stocks managed to finish the session with impressive gains after reversing early losses on the last day of the week, Friday, 05 December, 2008. Economic reports, job cut news and earnings cautions dominated the week which was fully in search of direction. The indices behaved in a Hayward manner during the week, moving each way without any catalyst.

The Dow Jones Industrial Average lost 193.62 points (2.2%) for the week to end at 8,635.42. Tech - heavy Nasdaq lost 26.26 points (1.7%) to end at 1,509.31. S&P 500 shed 20.17 points (2.3%) to end at 876.

On Monday, the November Institute of Supply management (ISM) report showed that U.S. manufacturing activity decreased to 36.2% from 38.9% in the prior month. Readings above 50% indicate an expansion of the manufacturing economy, while readings below indicate a contraction. Just two of 18 industries were expanding in November - Apparel and paper. Dow registered a huge 680 point loss on that very day.

Also hammering stocks badly that day were the manufacturing gauges in three major world economies which showed sharp contractions in November. The purchasing managers' indexes for the euro zone and for the U.K. fell to record lows. In China, a gauge of the country's manufacturing activity in November showed the sharpest contraction in the survey's history, which began in 2004. US, too is already into recession which began in December, 2007.

Rest of the week did not get any piece of news to cheer much about. But still, the indices remained within manageable territory showing that market has perhaps discounted the worst already in itself.

Research In Motion, Merck and DuPont all issued earnings warnings. AT&T announced plans to cut 12,000 jobs and several other companies said they would also be trimming their payrolls.

Auto sales were dismal in November, highlighted by a 41% decline in GM's sales. November same-store sales declined 2.1%, which was the worst reading since it started collecting data in 2000. Continuing claims for jobless benefits reached a 26-year high. The percentage of loans in the foreclosure process (2.97%) hit a new record in the third quarter.

During the week, Fed Chairman Ben Bernanke spoke about the economy. In his prepared text, Bernanke said the U.S. economy remains under stress despite the efforts of the Fed and other policymakers.

Bernanke said that actions taken by policymakers have helped alleviate some problems in the financial markets, but are still far from normal. Bernanke said in his speech that the Fed could increase liquidity by purchasing longer-term Treasury or agency securities on the open market.

Bernanke then laid out the future policy options. He said it is "feasible" to cut the fed funds rate below its current level of 1%. He also said that although interest rates can't be cut below 0, the Fed has other policy tools, including increasing liquidity, backstopping liquidity directly in certain financial markets and working with other agencies to minimize systematic risk.

But the last day brought some unexpected surprise. On Wall Street, the Dow Jones industrial average closed up 259 points at 8,635, the Nasdaq closed up by 63.7 points at 1,509.31 and the S&P 500 moved up 30.8 points at 876. Dow had earlier dropped by almost 300 points.

Putting further worriers in the American economy, the Labor Department reported 533,000 drop in November nonfarm payrolls, which is far worse than the 335,000 drop that was expected. November manufacturing payrolls declined 85,000, which was actually less than the 100,000 decline that was widely expected. The unemployment rate, now at 6.7%, is the highest in roughly 15 years. The elevated unemployment rate comes as companies laid off workers as part of an attempt to shave expenses amid stiffening economic headwinds.

Volume on the New York Stock Exchange on that day topped 1.6 billion, and for every stock on the decline, more than two advanced. On the Nasdaq, more than 978 million shares traded, and advancers pulled ahead of decliners by a 2-to-1 ratio.

On Friday, crude-oil futures for light sweet crude for January delivery closed at $40.81/barrel (lower by $2.85 or 6.5%) on the New York Mercantile Exchange. Prices reached a high of $147 on 11 July but have dropped almost 77% since then. For the week, prices coughed up 25%. This was the largest weekly loss for crude in past twenty five years. For this year in 2008, crude prices have dropped 56.5%.

For the year, Dow, Nasdaq and S&P 500 are down by 34.9%, 43.1% and 40.3% respectively.