Losing Jobs

Friday's weak jobs data, which we said in our last update could be pivotal, was unexpectedly weak. Economists had forecasted nonfarm payrolls would grow by 92,000 in August. The report revealed that the number of jobs actually fell by 4,000 instead. This was the first decline in jobs since August 2003. Moreover, job growth for July and June was revised downward.

Prior to Friday morning, the stock market was in its usual bad-news-is-good-news mode. If the economy is weak, the thinking goes, the Fed is more likely to cut interest rates, which is bullish for stocks. Something seems to have changed in market psychology in the last few days. Forecasts of a recession are no longer being greeted as welcome tools in the quest for lower interest rates. Bad news is now seen as simply bad news.

However you want to interpret it, the jobs data took wind from the sails of a stock market that had been trying to pick up momentum. In hindsight, it appears more likely to have reached the top of a trading range and is now exploring for a bottom. Today brought a small gain for the Dow and modest losses in broader benchmarks like the S&P 500 and Nasdaq Composite. Health care, utilities and consumer staples - the classic defensive sectors - were positive for the day while real estate, materials and industrials fell. On an intermediate-term basis, energy and technology remain the strongest sectors.