Financial shares declined 1.9 percent for the biggest drop out of 10 groups in the S&P 500.Bank of America Corp. (BAC) and JPMorgan Chase & Co. erased at least 2.1 percent.Caterpillar Inc. (CAT) and General Electric Co. (GE) sank more than 1.8 percent, pacing losses among industrial companies. Alcoa Inc. (AA), scheduled to report earnings tomorrow, advanced 0.4 percent.
The S&P 500 slumped 1.2 percent to 1,381.79 at 10:24 a.m. New York time, following the benchmark index’s 0.7 percent weekly loss. The Dow Jones Industrial Average dropped 132.03 points, or 1 percent, to 12,928.11. U.S. exchanges were shut for Good Friday on April 6, when the employment report was released.
“At the moment, the one big news story that people have to focus on is the jobs number so there’s a focus on the disappointment there,” John Carey, who helps oversee about $220 billion at Pioneer Investments in Boston, said in a telephone interview. “The economy does continue to grow, but slowly, and I think that’s been the source of frustration for a lot of investors, that we haven’t had the big forward movement in the economy like we have in the past.”
Equities slumped last week after the Federal Reserve signaled it will refrain from further monetary stimulus and concern about Europe intensified. The U.S. Labor Department said April 6 that employers added 120,000 jobs, the fewest in five months and less than the median economist forecast of 205,000 in a Bloomberg survey. The amount had exceeded 200,000 for three straight months.
“This is a real shock,” Donald Selkin, the New York-based chief market strategist at National Securities Corp., which manages about $3 billion, said last week after the jobs report. “Everybody is so hung up on the 200,000 increase.”
The U.S. jobs report presents a challenge that stocks have overcome nine times during the bull market that’s driven the S&P 500 (SPX) up 107 percent in three years. The government’s monthly tally of U.S. hiring missed the median projection by 85,000, according to data compiled by Bloomberg. While the S&P 500 averaged losses of 0.8 percent in the day after shortfalls of this magnitude since March 2009, the benchmark gauge cut its decline in half a week later and was up 0.9 percent after two weeks, the data show.
Equities are failing to build on the S&P 500’s best first- quarter rally since 1998. The U.S. jobless rate fell to 8.2 percent, the lowest since January 2009, from 8.3 percent, the Labor Department said. Faster employment growth that leads to bigger wage gains is needed to propel consumer spending that accounts for about 70 percent of the economy. Americans worked fewer hours and earned less on average, helping explain why the Fed says interest rates may need to stay low at least through late 2014.
“What it calls into question and what the debate will be about is, once again, what is the pace of the recovery?” Mark Freeman, who oversees about $13 billion as chief investment officer at Westwood Holdings Group Inc. in Dallas, said last week.
Minutes from the March 13 meeting of the Federal Open Market Committee showed that the central bank will refrain from increasing monetary accommodation unless economic expansion falters or prices rise at a rate slower than its 2 percent target. Concern about Europe’s debt crisis intensified as Spain sold 2.59 billion euros ($3.4 billion) of bonds at an auction, less than the maximum target of 3.5 billion euros.
Fed Chairman Ben S. Bernanke has kept rates near zero since 2008 and expanded the central bank’s balance sheet with two rounds of asset purchases totaling $2.3 trillion. S&P 500 rallies during the first quarter of 2010 and 2011 stalled in April both years, with the index sinking as much as 16 percent and 19 percent, respectively, amid concern the Fed would stop stimulating the economy.
The S&P 500 surged 12 percent from January through March of this year as data on manufacturing, real estate and the labor market boosted optimism about the world’s largest economy. Reports last week showed manufacturing in the U.S. expanded at a faster pace than forecast while jobless claims dropped to the lowest level in four years.
Investors sold shares of companies most tied to economic growth. Financial stocks dropped 1.9 percent, the largest decline in the S&P 500. Bank of America lost 2.9 percent to $8.97, the biggest retreat in the Dow. JPMorgan erased 2.1 percent to $43.40. The KBW Bank Index dropped 2.2 percent, with all 24 of its components falling.
Caterpillar retreated 2.3 percent to $103.40 and General Electric fell 1.8 percent to $19.14, as industrial stocks fell 1.6 percent, the second-biggest decline as a group in the S&P 500.
Alcoa rose 0.4 percent to $9.67. The largest U.S. aluminum producer will report first-quarter earnings after the close of trading tomorrow. The average estimate of 19 analysts in a Bloomberg survey is for an adjusted loss of 4 cents a share.