Markets continue sharp sell-off
After falling sharply this morning, the Russell 2000 (NYSE: IWM) and the Dow Jones Industrial Average (INDU) have remained under pressure following unexpected bearish employment data indicating that tighter credit might be beginning to take its toll on the broader economy.
Despite a strong sell off, the Russell remains above its 52-week low of 736 reached on August 16. At 12:33 p.m. ET the small-cap index had lost 15.96 points, or 2.01%, to 776.96. The Dow had shed 175.91 points, or 1.32%, to 13,187.44.
The U.S. Labor Department reported before the open that non-farm payrolls fell by 4,000 to the lowest level in four years, from July’s level of 92,000. Economists had forecasted job creation to expand to 115,000.
The unemployment rate clocked in right in line with economists’ estimates, remaining flat at 4.6%, the same rate as in July.
The Labor Department noted that employment in manufacturing, construction, and local government education declined, while job growth continued in health care and food services during the month of August.
Average hourly earnings increased $0.05, or 0.3%, to $17.50. That’s 3.9% above last year, hinting that although labor markets are tighter, there still isn’t much pressure on labor costs. This is an indication that the non-inflationary unemployment rate is much lower than previously thought.
While stocks plunged, bonds surged, as investors sought safety in bonds. The two-year note yield toppled to 3.9%, its lowest level since September 2005. The five-year note fell to 5%.
The dollar also sharply fell to $1.37 versus the euro and 113.4 against the yen.
Interest rate futures priced in a greater likelihood the Fed would cut its Fed Funds Rate at its September meeting by 25 basis points to 5%. Odds of a half-percentage-point rate cut rose to a 76% from Thursday’s odds of 42%.
Fed Chairman Ben Bernanke said on Aug. 31 the central bank will “act as needed” to prevent the credit turmoil from adversely affecting the broader economy.
In business news, Beazer Homes USA, Inc. (NYSE: BZH) reported that it received default notices from the U.S. Bank National Association because the home builder has not yet filed its third quarter report for its third quarter with regulatory officials.
Elsewhere, a barrel of crude oil fell to the $75 level, after reaching a five-week high of $76.30 on Thursday.
