US stocks stumble on job report

Unemployment surges to sixteen year high

Sadness continued to grip Wall Street since the start of FY 2009 and stocks registered good losses during the first week that ended on Friday, 09 January, 2009. While the unemployment rate in US surged to a 16 year high during December, 2008, several major companies continued to issue earnings warnings. Trading volumes during the week remained quite low due the start of the week but picked up later.

There was a lot of economic news of note this week. The market reacted to each one of them in an expected negative manner.

The Dow Jones Industrial Average lost a huge 435.51 points (4.8%) for the week to end at 8,599.18. Tech - heavy Nasdaq lost 60.62 points (3.7%) to end at 1,571.59. S&P 500 lost 41.45 points (4.4%) to end at 890.35.

The Labor Department reported on Friday, 09 January, 2008 that the U.S. economy lost 524,000 jobs in December, closing out the worst year of job losses since World War II. The unemployment rate rose to 7.2%, the highest in 16 years. Nearly 2.6 million jobs were lost in 2008, with 1.9 million destroyed in just the past four months.

The 1.5 million jobs lost in the fourth quarter were the most in any three-month period since 1945.As a percentage of employment, job losses in 2008 totaled 1.8%, the worst since 1982 and the third-largest since the war.

The report also detailed that in 2008, the unemployment rate rose by 2.3 percentage points and unemployment increased by 3.6 million. Another 3.4 million workers were forced into part-time work during the year.

On that day, the Dow Jones industrial average ended lower by 143 points at 8,599, the Nasdaq closed lower by 45 points at 1,571 and the S&P 500 closed lower by 19 points at 890.

Several Dow components continued to come up with negative news during the week. In response to weak demand due to the slowing global economy, Alcoa said that it is cutting its workforce by more than 13,500 employees, or 13% of its worldwide workforce by the end of 2009. Also, Boeing announced that it will cut employment at its commercial airplanes business unit by 4,500 positions due to the weakening global economy. The job cuts will bring the unit's employment to roughly 63,500, which is in-line with the level at the start of 2008. Boeing had roughly 160,000 employees as of 2007.

During the week, minutes from the 16 December, 2008 Federal Open Market Committee (FOMC) meeting were released. The same indicated there was significant contraction in economic activity during the fourth quarter, and downside risk to growth remains. Unemployment is expected to rise significantly into 2010.

Also, during the week, Intel said its fourth quarter revenue will be lower than previous expectations, citing further weakness in end demand and inventory reductions by its customers.

Among other disappointing reports, most of the retailers reported dismal December same-store sales results. Many retailers lowered their earnings outlooks in response to the uncertain economic environment. Wal-Mart announced disappointing December comparables and lowered its profit outlook. Leading electronics retailer Best Buy reported a 6.5% drop in December same-store sales as strong TV sales were offset by weakness in digital cameras, video games, movies and music.

On Friday, crude-oil futures for light sweet crude for February delivery closed at $40.83/barrel (lower by $0.87 or 2.1%) on the New York Mercantile Exchange. Earlier during the day, prices fell to a low of $39.98. For the week, crude prices shed 12%.

Executive Summary

For the week, indices registered good losses at Wall Street. The weak job market report from the Labor Department showed that US registered highest number of layoffs in 2008 since the Second World War. Dow components continued to announce job cuts and earning warnings.

In percentage terms, Dow lost 4.8%, Nasdaq lost 3.7% and S&P 500 lost 4.4%.

For the year 2009, Dow, Nasdaq and S&P 500 are down by 2%, 0.3% and 1.4% respectively.