Wall Street Drops After Jobs-Report Rally Fizzles

Wall Street closed solidly in negative territory on Friday, rounding out the worst week ever to start a new year for the broader averages, sending them down 6%.

The Dow Jones Industrial Average dropped 170 points, or 1.03% to 16434. The S&P 500 lost 21 points, or 1.09% to 1921, while the Nasdaq Composite shed 45 points, or 0.98% to 4643.

The energy sector was the biggest decliner on the session as oil prices fell back into negative territory.

Today’s Markets

A blowout December jobs report was not enough to sustain Wall Street’s euphoria before global-growth concerns once again took the reins. After a more than 200-point rally on the Dow immediately following the 8:30 a.m. non-farm payrolls report, Wall Street reversed gains to close deeply in negative territory.

The broader averages saw their worst first week of a year ever as the Dow and S&P 500 posted losses of 6%, while the Nasdaq, which saw its worst start to a year since 2008, wiped off 7.3%. All in all, the Dow has shed more than 1,100 points so far this year.

As for that jobs report, you could call it a December to remember: The Labor Department reported the U.S. economy added 292,000 in the final month of 2015, compared to expectations for a gain of 200,000 jobs. The unemployment rate held steady at 5% while the labor force participation rate ticked up to 62.6% from 62.5%.

Eric Wiegand, senior portfolio manager at U.S. Bank’s Private Client Reserve, said there was only one way to describe the report: “Wow.”

“it had something for everybody. The headline numbers and the revisions for the payrolls were quite remarkable. It’s certainly going to give investors reason for comfort, perhaps not renewed confidence, that the U.S. is a bit of a different story despite the last few days of action out of China.”

The only surprising piece out of the report, he said, was a lack of wage pressures. Average hourly earnings for all private workers were unchanged during December. He also commented on the surprise increase in factory jobs in the U.S., which he said was interesting, but not yet conclusive since it’s only one data point. Jobs in the sector saw a gain of 8,000, compared to expectations for a loss of 1,000 jobs for the month. Those numbers come during a time when the U.S. manufacturing sector remains rooted in contraction territory.

The bottom line: The data was just what the doctor ordered for the broader markets that had, before the start of trade Friday, shed more than 5% for the week.

“I think this is a calm port in a storm,” Wiegand said. “It doesn’t address concerns that spilled over from 2015, and those are the trajectory of global growth and the impact on currencies and central bank policies around the world. But it’s reassuring, and we still believe the U.S. is in a good position, though our conclusion is that we are likely to be in a period of increased volatility.”

To put this week’s action in context, according to the S&P Global Broad Market Index, $2.23 trillion was wiped off the market over the last four days. That’s more than the estimated U.S. student loan debt, and 12% of the United State’s debt, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Despite a calm session to cap the week, the major averages were set for steep weekly losses. The Dow and S&P looked to shed more than 5% each, while the Nasdaq was 6.5% lower during the period.

China Finds Firmer Footing

Global markets, including the U.S., stabilized early Friday thanks to confidence out of China where the Shanghai Composite index, which twice experienced a trading halt thanks to heightened volatility this week, rallied overnight. The index finished up 2%, but sustained losses of more than 10% for the week.

Optimism came after the People’s Bank of China set the yuan unchanged from the previous session and after regulators opted to suspend the market’s so-called circuit breaker, a mechanism that halts trading when equities fall 7% in a single session. The tool’s goal was to prevent panic selling, but traders and analysts have said it actually did the opposite in China since the threshold was set low compared the U.S.’s 20% circuit breaker.

“Human psychology has had a strong hand to play in the way Chinese markets behaved. The removal of the system that suspends the market should it fall too much has, ironically, seen the fear of entrapment reduced with Asian investors, IG market analyst Alastair McCaig said in a note.

He added the change in tactic from regulators should help the second week of the trading year get off to a more normal start.

Peter Kenny, independent market strategist, agreed, saying the momentum of the “inaugural 2016 selloff” may have reached its fever pitch on Thursday.

“Normally Fridays are not the day of the week where buyers show up in force, but given the extreme risk-off nature of our first four days of trading this year, bargain hunters may be enticed to step into the market,” he said.

Elsewhere in the market, global oil prices, which rallied early Friday, slipped back into the red as the global glut of crude supplies limited gains.

In recent action, West Texas Intermediate crude prices slipped 0.33% to $32.70 a barrel. For the week, WTI shed 10.48%, hitting its lowest settle value on Monday since February 2004.

Brent, the international benchmark, declined 0.59% on Friday to $33.55 a barrel. For the week, Brent shed 10.01%, hitting its lowest settlement value on Tuesday since June 2004.

Investors also kept a close eye on the potential for Saudi Arabia to take its state-owned company, Aramco, public. The country said it was studying its options.

“Even if current speculation that Saudi stat-owned oil company Aramco doesn’t come to market, it highlights how serious the pain from reduced revenues must be that they are even considering it,” McCaig said.

Elsewhere in commodities, metals were lower as gold, which saw a rally in the prior session as traders sought safe havens, fell 0.33% to $1,104 a troy ounce. Silver slipped 2.08% to $14.05 an ounce, while copper declined 0.22% to $2.02 a pound on China optimism.