The monthly Labor Department report, released Friday, showed there was no job growth in the United States economy in August. In addition, analysts said financial stocks were hurt by the prospect, reported by The New York Times, that a federal agency was set to file lawsuits against more than a dozen big banks over their handling of mortgage securities.
Many investors had sold stocks ahead of the government’s Labor Department report, which analysts in a Bloomberg News survey had forecasted would show a gain of 68,000 nonfarm payrolls. The flat performance t was down sharply from a revised 85,000 new jobs in July. The unemployment rate stayed constant at 9.1 percent in August.
The suits by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.
When the stock market opened, all three major Wall Street indexes slid lower and stayed there. By midday, the Dow Jones industrial average was down 169.34 points, or 1.5 percent. The Standard Poor’s 500-stock index was down 1.7 percent, and the Nasdaq composite index fell 1.6 percent.
The financial sector dragged down the broader market, with the five most actively traded banks in the sector each down about 3 percent or more. Bank of America was about 6 percent lower; Wells Fargo was down nearly 4 percent, and JPMorgan was down more than 3 percent.
“This is not good news from the perspective of the banking sector,” Phil Orlando, chief equity market strategist at Federated Investors, said about the potential for the mortgage-security lawsuits.
The jobs report, too, was “very disappointing. It was much weaker than expected. We were thinking that if today’s jobs number was poor we would start to see a pull-back.”
The markets in the United States followed declines in Asia and Europe.
The Euro Stoxx 50 index plunged 5.5 percent, while the DAX in Germany lost 3.4 percent and the CAC 40 in France fell 3.6 percent. The FTSE in Britain was down by 2.3 percent. In Asia, the Shanghai, the Nikkei and the Hang Seng indexes each closed down by more than 1 percent.
“The latest fall follows a highly volatile August period which saw global markets take substantial hits over political uncertainty over the U.S. debt ceiling and subsequent credit downgrade,” John Douthwaite, chief executive officer of SimplyStockbroking, said in a research note.
In August, all three indexes in the United States had their worst monthly performance since 2001. Shares took a beating for reasons that included fears of an economic slowdown and fiscal problems in the United States as well as continuing concerns over debt issues in Europe.
Mr. Douthwaite said market turbulence was set to continue in September because of weak economic data from the United States and Europe.
The decline in stocks on Friday came just ahead of the start of the three-day Labor Day weekend in the United States. It followed a lackluster day of low trading volume on Thursday, when banks led the market down, ending a four-day rally.
The three major indexes extended their losses from Thursday, when they closed more than 1 percent lower.
The worse-than-expected jobs report led some economists to forecast new policy action by the Federal Reserve at its next meeting on Sept. 20-21.
Economists from Goldman Sachs said that it now was more likely the Fed would lengthen the average maturity of its balance sheet, with sales of relatively short-dated Treasuries and purchases of relatively long-dated Treasuries.
Mr. Orlando said the central bank could also cut the premium on banking reserves to force banks to lend more.
The price of the 10-year Treasury note rose Friday morning, and the yield fell to 2.043 percent from 2.13 percent late Thursday.
Shaila Dewan and Nelson D. Schwartz contributed reporting.
Article source: http://www.nytimes.com/2011/09/03/business/daily-stock-market-activity.html?partner=rss&emc=rss
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