US stocks fall on jobs data; further declines seen
Aug. 6-MAR-- [B] US stocks fall on jobs data; further declines seen
By Rebecca Byrne, Bridge News
New York--Aug 6--US stocks fell sharply on the release of the
stronger-than-expected employment report this morning, prompting some
analysts to say that the market is heading for further declines in what
could prove to be a replay of last year's financial debacle.
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The employment report showed that July non-farm payrolls increased
310,000, compared with forecasts of a 200,000 rise. Average hourly
earnings rose 0.5%, the biggest rise since January, and well above the
0.3% estimated increase.
The jobless rate remained steady at 4.3%, slightly ahead of the 4.2%
consensus.
Investors are particularly sensitive to the data after Thursday's soft
productivity numbers and unemployment claims.
Don Hays, director of investment research at Wheat First Butcher
Singer, said the data released today gives the Federal Reserve further
reason to raise rates at its next FOMC meeting, in order to slow growth
and stem inflation.
Hays said stocks are likely to trade lower until the August meeting. In
fact, he said, he sees a 20% to 35% decline on the S&P 500 from current
levels.
"The situation is almost identical to what happened last year. We'll
continue to feed off these extremely oversold levels," he said.
The reversal in the major indexes Thursday led some analysts to
question whether the market had seen its bottom. But Hays is skeptical.
"We had a volume reversal on the same day last year but stocks
continued to break down in the next two weeks," he said.
Hays said that aside from concerns over Fed monetary policy, the market
is also anxious about potential problems at a large financial
institution, similar to Long-Term Capital Management last year.
Treasury prices and eurodollar futures climbed Thursday amid talk that
a bank, brokerage or hedge fund had taken a huge hit on an
over-the-counter options position, probably related to swaps.
"The rumors showed that something unexpected could happen at any time,"
Hays said.
In addition, Hays noted that Latin American markets are extremely soft
while the US dollar continues to weaken.
Ralph Acampora, director of technical research at Prudential
securities, agreed that certain patterns in the market parallel those
seen in the July/October period of 1998.
The breadth of the market on the NYSE, Amex and over-the-counter
bulletin board is now below the respective May/June 1999 lows, he said
in a report.
In addition, the Dow Utilities have broken down, there is vast
divergence between the Dow Jones industrial average and the Dow Jones
transportation average, and the leading stocks are now under selling
pressure, he noted.
But Acampora said the market also differs from last year in some
important ways.
"In July 1998 we began seeing about 400 new 52-week lows per day. This
July we only saw about 170 new 52-week lows per day," he said.
In addition, Acampora said that during July 1998 he could find no
stocks to buy during the decline.
"We saw massive liquidation. Today we have stocks to buy--this is
called rotation and it is a much more comfortable feeling," he said.
Unlike Hays, Acampora said the market is less worried about
international concerns, but is focusing more on domestic issues, such
as rising interest rates.
Bob Dickey, chief technical manager at Dain Rauscher, said that in
order to turn things around, some kind of bottoming and testing pattern
is needed first.
"We would give this correction another two weeks or more of generally
disappointing action until the coast will be clearer," he said.
"The biggest concern is whether or not the DJIA support at 10,500 will
hold during this period," he said, adding that a breakdown would signal
another 500 to 1,000-point loss.
Dickey said while the market has not reached the bottom yet, stocks
could turn on the Fed meeting, as they did last month.
The Dow Jones industrial average was last down 44, or 0.42%, at 10,749.
End Bridge News, Tel: (212) 372-7288
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