Equity Markets Decline Following Labor Data

U.S. markets declined at a sustainable pace on Thursday after the Non-Farm Payroll showed that the labor market is still struggling.

The global equity markets traded on weak momentum even from the European session, as the major regional indexes were falling close to 2% from the first few hours of trading. This, in turn, sent the S&P futures lower, which were down around 0.8% ahead of the NFP release.

As the worse than expected NFP numbers hit the wires, the S&P futures tumbled another 17 points, which made the pair broke below the 900.00 area. Since then, the S&P futures traded relatively flat, but still below the 900.00 area.

Data coming from the labor market continues to disappoint investors, something that made a rather large number of investors switch from the bulls to the bear’s camp. The latest numbers for the month of June showed that the economy lost 467K jobs, while the unemployment rate surged to a 26-year high of 9.5%. At the same time, a report showed that the unemployment claims remain above the 600K benchmark for almost five consecutive months.

The poor labor market has wide implications throughout the U.S. economy. The two biggest problems with a rising unemployment rate are seen in the credit and in the retail markets, both represent major problems for the global economy at this point. Historically speaking, there is a strong relationship between the unemployment rate and the default rate on mortgages since jobless persons cannot pay their debt anymore

To add more problems into the mix, the high level of default rates was one of the main problems that led the U.S. economy into the credit crisis. The second problem with a rising unemployment rate is that it cuts spending, since consumers will now be more likely to start saving for their financial safety, and cut unnecessary expenses, such as the discretionary spending.

The Dow Jones Index fell 174.65 points (2.05%) to 8,329.41, while the S&P 500 index declined 21.10 points (2.29%) to 902.23.

Crude oil for July delivery was recently trading at $66.90 per barrel, lower by $2.30. So far on Thursday, the pair declined $3, among the biggest one-day declines of the last few months.

Gold for July delivery was recently trading lower by $10.30 to $931.00. With Thursday’s decline, gold retraced every dollar gained the prior day, on Wednesday.

Disclosure: No positions

Comments

[friar tuck:]

you do not have a very good grasp on what the cause of this whole reccession is. foreclosures for ordinary people are the results of liberties taken by appraisers and mortgage brokers. i think it's referred to as predatory lending. people become frustrated with the bind they're in because of these shylocks. the house they bought 7 or 8 years ago now needs some serious repairs that can't be financed with cash on hand. for what ever reason the appraiser comes to the home and doesn't even look at it as he underprices it to the point where the refinancer can blame the appraisal for rejecting your loan for a new roof. the roof leaks, you're now stuck with a liability instead of an asset so you stop throwing your money away on a worthless piece of property. foreclosures have not as much to do with unemployment as it has to do with no hope and no other choices. "ok mr. bank, you rejected my home improv loan so here's your piece of junk back." as for the unemployment rate being 10%, the main reason for that is all the businesses in america have been over hiring for years. that's the way you get a cost effective work force. everybody knows there are 6% of their workmates who get paid more than what they produce. there are always difficulties when a business owner wants to selectively layoff workers so they layoff 10% of the work force so they can hire back the 4% they really wanted to keep anyway. this process takes it's time to work through the system but it will all come around when customers start clamoring for products that are needed for the projects and production going on in this country. if the stock market is based on a company's earnings/profit, then we should be seeing the market going up. the only problem with the market not moving logically is the fear factor, which leads to money hoarding by the filthy rich republicans who listen to and watch the fearmongering FOX channel. for the life of me, i can't figure out why anyone would want to be associated with the party of hoover (ultimate ostrich), eisenhower, a deranged murderer ( ANYBODY HEAR OF EDDIE SLOVIK?), richard nixon ( no words to describe that jerk) ronald reagan (look at california today) the bushwackos and cheney and so on and so forth to the penultimate FOX super hero, sarah (i quit) palin. anybody wonder why the country is so divided? thank the republican power grabbers, the religious idiots who still believe in a book that was written and read by people who thought the world was flat, the chicken little fear mongerers and the divide and conquer agenda of the GOP. i recall a typing exercise used during the war years. my mother taught it to me and it goes like this.... NOW IS THE TIME FOR ALL GOOD MEN TO COME TO THE AID OF THEIR COUNTRY. let's go america...buy buy buy....sell sell sell.....spend spend spend.

Jul 05 10:38 AM