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Stocks Under Siege; Bonds, Gold Surge

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Preston Waters

U.S. stocks remained deep in the red late Friday after the government said the economy added far fewer jobs than expected, adding to concerns about a global slowdown. 

The Dow Jones Industrial Average was down by 268 points, or 2.2%, at 12,125. The session low is 12,112. The blue-chip index, which is now negative for the year, is on pace for its biggest one-day point drop of 2012.

The S&P 500 was losing 31 points, or 2.4%, at 1279, breaking below 1280 for the first time since Jan. 13.

The Nasdaq was shedding 74 points, or 2.6%, at 2753.

All 30 Dow components were in the red. The biggest percentage decliners within the blue chips wereAmerican Express (AXP), Bank of America (BAC) and Hewlett-Packard (HPQ), all of which were losing more than 4%.

Shares of HP, which announced a major restructuring last week when it reported its fiscal second-quarter results, were down more than 6% after Jefferies downgraded the stock to hold and lowered its price target to $23 from $30. The firm said it expects most of HP’s businesses to be challenged in the medium term.

“Specifically we think tablets will hurt PCs (and Windows 8 will not help), smartphones will hurt printers, and European uncertainty will hurt enterprise IT spending,” Jefferies said.

In the broader markets, losers were outpacing winners by 6-to-1 on the New York Stock Exchange and by about 5-to-1 on the Nasdaq.

The Labor Department said early Friday the economy added 69,000 jobs in May, well below the 150,000-plus jobs economists were expecting.

The private sector added 82,000 jobs, compared to market expectations of 164,000.

The unemployment rate ticked up to 8.2%. Economists were expecting the rate to remain steady at 8.1%.

The report also included downward revisions to March and April numbers. The economy created only 143,000 jobs in March, compared to 154,000 estimated earlier.

In April, nonfarm payrolls rose by only 77,000, a significant reduction from the 115,000 originally estimated.

The pace of job creation has decelerated sharply since the first quarter, when the average monthly gain was 226,000.

Demand for safe-haven assets rose amid heightened risk aversion, pushing the yield on the 10-year Treasury note below 1.5% for the first time ever. Gold was soaring amid renewed expectations for additional quantitative easing in the wake of the disappointing data.

“It’s hard to get much worse than 69,000. Probably in the summer I would see the numbers going up a little bit, but if we’re going to hover around 100,000 [jobs added], I definitely see a QE3 coming,” said Frank Fantozzi CEO of Planned Financial Services.

Global markets had already been trading weaker amid fresh signs of a slowdown in China and further weakness in Europe.

China posted its slowest manufacturing growth in more than a year, with the purchasing managers index falling to 50.4 in May from 53.3 in April.

European shares dropped amid reports of a further slowdown in manufacturing and rising unemployment in the 17-nation eurozone.

The eurozone PMI declined to 45.1 in May from 45.9 in April, marking a three-year low. Unemployment in the region hovered at 11%, with 17.1 million people now without jobs.

The FTSE in U.K. shed 1.1%, while Germany’s DAX sank 3.4%.

In Germany, the yield on two-year bonds turned negative for the first time, indicating that investors were essentially paying for capital protection.

Meanwhile, the U.S. Bureau of Economic Analysis also released numbers on personal income and spending.

Personal income increased $31.7 billion, or 0.2% in April, down from 0.4% in March.

Personal consumption expenditures rose 0.3%, up from 0.2% in March.

The Institute for Supply Management’s index of manufacturing activity dipped to 53.5 in May from 54.8 in April, below expectations for a reading of 54.

The Commerce Department said construction spending data rose 0.3% in April, compared to a forecast for a 0.4% rise.

“It’s hard to look around and see a lot of rays of sunshine. I think it’s important to recognize, though, that every time in this recovery when things have looked gloomy, the economy has turned out to be resilient – not strong, but it keeps going,” said Josh Feinman, global chief economist at Deutsche Bank Advisors.

“I think it would take something of [drastic] nature to undermine the recovery, but at the same time that recovery – I would characterize the recovery as fluctuations around a mediocre trend. That’s kind of what it is; we’re bouncing around a growth trend that is, for a lack of a better word, just pretty darn mediocre,” said Feinman.

July oil futures settled down by $3.19 at $83.34 a barrel. August gold futures jumped $58.70 to settle at $1622.90 an ounce.

The benchmark 10-year Treasury was higher by 30/32, lowering the yield to 1.461%. The greenback was losing 0.16%, according to the dollar index.

In corporate news, BP (BP) said Friday it has received “unsolicited indications of interest” for its 50% stake in TNK-BP, Russia’s third-largest oil producer.

BP’s stake in TNK-BP could be worth more than $30 billion, according to The Wall Street Journal. Shares were up 0.5%.

General Motors (GM) said vehicle sales rose 11% in May to 245,256 vehicles over the same month a year ago, its highest monthly total since August 2009. The stock lost nearly 2%.

Ford (F) said sales of vehicles rose 13% in May, led by rapid growth in pick-up truck sales.The stock was down 4.5%.

Shares of Groupon (GRPN) were down more than 9%. The company’s post-IPO lock-up has expired, freeing up more shares for trading.

Elite.

Preston Waters

Preston Waters

Editor

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