Dow Tries to Claw Into Black

PETER A. MCKAY GEOFFREY ROGOW

The Dow Jones Industrial Average spent most of the session flirting with breaking even for the year to date amid some volatile trading in the aftermath of a better-than-expected report on employment.

The Dow industrials were up 25 points with less than 30 minutes left in regular trading, as gains for manufacturing stocks like Boeing and Caterpillar were offset by drops for DuPont, which suffered an analyst downgrade, and Merck, which is shelving plans to seek approval for a new heart-failure drug this year.

The blue-chip measure has pushed into positive territory several times in the session, only to turned back, but appeared on course to close above its level on 2008's last trading day. The Dow was about 0.3% above its 2008 close.

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The S&P 500-stock index, which is up 4% for the year so far, was flat, as most of its sectors sank. Its energy and basic-materials sectors were especially weak, tumbling about 0.8% and 1.1%, respectively.

Energy stocks fell as crude-oil futures slipped after surging for much of the week. The front-month crude futures contract settled at $68.44 a barrel, down 37 cents, or 0.5%. For the week, crude rose 3.2%, or $2.13 a barrel.

"I think it's a little premature to get excited about the run in commodities as it's kind of a relief rally," said Stephen Lieber, chief investment officer for Alpine Dynamic Balance Fund. "There are people hopped up on the notion China and emerging markets will reinflate the world economy."

The Nasdaq Composite Index was up 0.1%. It has jumped more than 17% on the year.

Markets were volatile after the Labor Department said nonfarm payrolls shed 345,000 workers in May, well below Wall Street's expectation for a decline of 525,000 jobs and the smallest monthly job loss since September 2008, when Lehman Brothers collapsed. The smaller than-expected decline was met with a burst of enthusiasm in early trading, and stocks rallied sharply after the opening bell.

But the report's details provided little reason to hope that businesses will soon begin hiring more workers. The unemployment rate jumped half a percentage point to 9.4%, the highest since August 1983. That rise helped to damp traders' initial euphoria. Economists at BNP Paribas wrote to clients that the data show a job market "gripped in a very severe recession."

Scott Pollack

"Intuitively, it's hard for people to wrap their brains around this idea that one number beat expectations, the other missed, and what does all that mean," said market analyst Art Hogan, of Jefferies & Co. "I think we're getting back to the point, though, where the market is reacting about as it should," to the report's fundamental implications for the economy.

Some traders were also nagged by worries that inflation pressures may arise earlier than expected, causing the Federal Reserve to tighten rates before a firm growth trend is in place in the U.S. economy, said Anthony Conroy, head trader at BNY ConvergEx, a New York brokerage.

Treasury prices dropped, pushing yields up. The 10-year Treasury note was off 30/32, yielding 3.834%.

In a speech on Friday, Janet Yellen, president of the Fed's San Francisco branch, said it would be "disconcerting" if the recent increase in Treasury and mortgage yields has been fueled by inflation fears. The Fed has been buying longer-dated Treasury issues lately in order to prevent those yields from getting out of hand and derailing a broader economic recovery.

Strategist Jeffrey Kleintop, chief market strategist at LPL Financial Services in Boston, said that investors' fears of renewed inflation have been apparent in the relatively weak performance of financial stocks, which would suffer if the Fed tightened rates at some point to rein in growth in consumer prices.

State Street was off almost 4%, U.S. Bancorp was off more than 3%, and Zions Bancorp was down about 2%. But Fifth Third Bancorp bucked the trend, rising almost 2%. The KBW Banks Index was down 1.6%.

LATICONOMICS

Friday, June 5, 2009