Sunday, May 6, 2012

U.S. Markets Post Biggest Weekly Drop of 2012

U.S. markets tumbled on Friday on a weaker-than-expected jobs report, and weak economic data from the euro zone. On Friday, the S&P 500 dropped 22.47 points or 1.61% to 1,369.10. The Dow tumbled 168.32 points or 1.27% to 13,038.27. For the week, the S&P 500 fell 2.4%, for its worst weekly performance in 2012.

Disappointing April Jobs Report

The jobs data responsible for Friday's market tumble was the U.S. April jobs report, which showed a gain of only 115,000 jobs. It was 55,000 less than the 170,000 jobs that economists expected. In addition, job gains decreased for the third month in a row. Even though the unemployment rate fell to 8.1%, it was due to 342,000 people giving up looking for work.

Euro Zone PMI Disappoints

On Friday, the Eurozone Services PMI from Markit showed a reading of 46.9 in April, which was significantly lower than the 49.2 in March. It indicated a deeper recession for the euro zone. In addition, France and Greece were heading into elections in the weekend, which added to the uncertainty in the markets.

Yields on Spanish Debt Remains Elevated

On Thursday, 3-year Spanish debt was auctioned at 4.037%, much higher than the 2.89% in the previous auction. Meanwhile, 5-year debt was auctioned between 4.752% and 4.960%, higher than the 4.319% previously.

ADP Shows Weak Private-Sector Hiring

On Wednesday, the ADP jobs report alluded to the disappointing April jobs numbers. The ADP report showed a gain of only 119,000 private-sector positions, much lower than the 177,000 the market expected. In addition, U.S. factory orders in March fell 1.5%, its biggest fall in 3 years. This caused the U.S. markets to open lower on Wednesday.

ISM Data Better Than Expected

Not all economic data this week was weaker-than-expected. On Tuesday, the April ISM reading was 54.8, better than the 53 the market expected. As a result, the Dow rose almost 100 points in early trading.

Looking Ahead to Next Week

Investors will be watching data from China next week, when the country releases inflation, retail and factory numbers. In addition, investors will pay attention to March readings on industrial output in Germany, France, Italy and Spain for a measure of how deep the euro zone recession will be.

Sunday's election defeat of Nicolas Sarkozy in France and the ruling parties in Greece will cause investors to become concerned about how determined the euro zone is in carrying out austerity measures. These election defeats will add to the uncertainty in the markets. With the disappointing jobs data from Friday continuing to weigh on markets, stocks will likely head lower in the beginning of next week. With earnings season winding down, investors will turn their focus back to the euro zone. With uncertainty in the euro zone increasing and what appears to be a deeper recession, U.S. markets will likely head lower next week.

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