Friday's Dismal Employment Report Sent Shock Waves Through The Market

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 |  Includes: BAC, BBT, C, DHI, GS, JPM, LEN, LNKD, MAN, MS, MWW, PHM, PNC, RHI, USB, WFC
by: The Value Investor

Friday's dismal Non-Farm Payroll report took the market, which was already down, by surprise and resulted in the worst day performance so far this year for the major national averages.

Non-Farm Payroll Report

The economy created 69,000 jobs in the month of May, far below the expected 150,000. Earlier last week ADP payrolls data suggested that the employment report might come in on the lower side. As a result of the slowdown in employment growth the unemployment rate ticked up from 8.1% to 8.2%. The pace of job creation has significantly slowed down in recent months. In comparison, for the first three months of 2012, the economy added 226,000 jobs on average per month. A particularly worrying detail in the report was the loss of 28,000 construction jobs during the month.

Investors were very disappointed with the report and seem to have given up on the hope of a modest housing recovery any time soon. Analysts and investors were hoping that a gradual recovery in the important housing sector could help the economy forward in the second half of the year. As a result of the disappointing report, investors sold their stocks off en masse. The S&P 500 lost over 32 points on Friday, closing at 1,278.04

Some sectors have been hit particularly hard by the sell-off. In particular, the financial sector, the construction sector and personal staffing sector where hit hard.

Financials

The nation's largest banks got hit hard on worries that mortgage delinquencies could be on the rise again. The financial sector has been hit hard in recent weeks as fears emerged that the sector might be subject to new regulation after JP Morgan's (NYSE:JPM) $2 billion trading loss. Furthermore, continued worries about the future of the euro have been a drag on the wider financial sector in recent weeks. Large Wall Street banks lost significant ground on Friday. Bank of America (NYSE:BAC) lost 4.5%, Citigroup (NYSE:C) 4.2%, JP Morgan Chase 3.7%, Goldman Sachs (NYSE:GS) 3.2%, Morgan Stanley (NYSE:MS) 4.7% and Wells Fargo (NYSE:WFC) lost 5.9%. Shares of regional banks, which are more reliant on domestic and traditional banking operations, also witnessed significant price declines. PNC Financial Services (NYSE:PNC) fell 5.5%, US Bancorp (NYSE:USB) 4.8% and BB&T Corporation (NYSE:BBT) fell 6.2%

Construction

The bad overall employment report and the fact that the US lost some 1,000 construction jobs every day for the month of May killed all hopes for a quick and smooth housing recovery, despite record low interest rates. Shares of the three largest home-builders fell of a cliff. PulteGroup (NYSE:PHM) got hit the hardest with a 11.7% decline. D.R. Horton (NYSE:DHI) fell 8.4% and Lennar Corporation (NYSE:LEN) fell 8.3%. Investors grew worried that the sector is not recovering despite record low interest rates. The large supply of foreclosures are still hanging above the market, depressing construction activity.

Staffing Industry

Higher unemployment is one on one bad news for the professional staffing industry. Shares of LinkedIn (NYSE:LNKD) fell 4.8% as investors fear that advertising rates and rates for professional staffing services will come under pressure. More traditional staffing firms fell as well. Monster Worldwide (NYSE:MWW) fell 6.7%, Manpower (NYSE:MAN) 3.5% and Robert Half International (NYSE:RHI) 6.4%

Conclusion

Investors are not happy with the dismal employment report which got released in a market which has already been under pressure amidst renewed concerns about the developments in Europe. Investors sold off stocks in industries which are particularly vulnerable to a slowdown in employment. Banking stocks, the construction industry and professional staffing firms came under significant pressure as investors are pricing in a significant slowdown in the economy in the coming months.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.