Wall St. fears for the worse
By Michael J. Martinez
Associated Press
NEW YORK — If you were to superimpose a chart showing the Dow Jones industrial average for the past few weeks with a chart showing oil prices, you'd see a distressing mirror image — when oil went up, stocks went down.
For the past week, investors wondered what would break stocks out of the cycle. Yesterday, they got their answer. The problem is that the economy added only 32,000 jobs in July, far fewer than economists expected. That broke the cycle by sending stocks even lower.
Now investors are faced with a confluence of bad news that will likely send prices down further. Crude-oil futures continued to hover around $44 per barrel and, some analysts said, could reach $50 a barrel or more before heading lower. And the economy's "soft spot" in June, as described by Federal Reserve Chairman Alan Greenspan, could turn out to be a disturbing trend instead of a singular aberration.
So while fewer jobs are being created — and, most likely, consumer spending will be constrained by the scarcity of new work — consumers will pay more not only at the pump, but also for many other goods that must be shipped to stores.
Consumer spending, of course, is one of the engines of the economy. And that has Wall Street very nervous.
"This isn't a recession — it's a slowdown at best," said Bob MacIntosh, chief economist for Eaton Vance in Boston, a private investment firm. "But this is frustratingly weak growth, and combined with oil prices where they are, there's a lot of uncertainty that will weigh on the markets for a while, possibly until the elections. And when there's uncertainty, there's selling."
That was reflected in the markets. The Dow industrials fell 163.48 on Thursday because of a sharp spike in oil prices.
The Dow index then fell another 147.70 points yesterday after the weak jobs report — putting its decline for the week at 3.2 percent, its worst weekly loss since the second week of March. The Dow stood at 9,815.33, its lowest close since Nov. 28.
The Nasdaq composite index tumbled 5.9 percent for the week, and the Standard & Poor's 500 index was down 3.4 percent — the worst weekly performance of the year for both indexes.
In yesterday's session, declining issues outnumbered advancers by more than 2-to-1 on the Big Board, where preliminary consolidated volume came to 1.81 billion shares, up from 1.7 billion shares traded on Thursday.
Wall Street had been expecting 235,000 new jobs. Since May, the economy has created 318,000 jobs, while economists and investors had been expecting 710,000 for the past three months.
"It's a terrible number," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "The soft spot that Greenspan was talking about just a few weeks ago looks a lot bigger now. That really puts the Fed's credibility at stake."
The Federal Reserve's meeting on Tuesday will likely determine the short-term direction of the market for at least the rest of the month, analysts said. The Fed had been widely expected to raise the overnight bank lending rate by a quarter percentage point, to 1.5 percent, as part of its policy to gradually but firmly increase borrowing costs through the rest of the year.
The Fed faces a set of dilemmas:
• Raising rates now would send a signal that central bankers are prepared to keep inflation from accelerating, but it could come at the cost of further slowing the economy and job growth.
• By forgoing a rate hike, The Fed's decision-makers could help the economy generate more growth, but then oil-induced inflation becomes more of a risk.
