US Stocks Fall Sharply as Jobless Claims Hit 26-Year High

Stocks Fall Sharply as Jobless Claims Hit 26-Year High

By Renae Merle
Washington Post Staff Writer
Thursday, July 2, 2009; 4:58 PM

Stocks tumbled today after a government report showed the country's unemployment rate reached 9.5 percent last month as employers cut more jobs than expected, stoking investor concerns of a prolonged recession.

This Story
467K Jobs Cut in June; Jobless Rate at 26-Year High
Stocks Fall Sharply as Jobless Claims Hit 26-Year High
The losses were broad based with all 30 blue chip stocks on the Dow Jones industrial average losing ground. All of the major indexes, including the Dow, fell at least 2.5 percent and posted another weekly loss. Meanwhile, nervous investors moved into government bonds, a traditional safe haven during market turbulence, raising prices on some long-term notes.

After Wall Street closed the second quarter with its first quarterly gain in more than a year and a half, "many investors were feeling that the worse was behind us," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel, an investment management firm. "This is a reminder that, no, it's not."

The Dow fell 2.63 percent, or 223.32 points, to close at 8280.74, while the broader Standard & Poor's 50-stock index was down 2.91 percent, or 26.91 points, to close at 896.42. The tech-heavy Nasdaq Composite index tumbled 2.67 percent, or 49.20 points, to close at 1796.52. After a short trading week, the Dow and S&P were down 2.8 percent and 3.2 percent respectively. The Nasdaq lost 2.58 percent for the week.

Financial stocks helped lead the declines today. Bank of America and Morgan Stanley fell 3 percent and 4.8 percent respectively. And energy stocks also took major losses after crude oil prices fell nearly 4 percent to $66.73 a barrel on the New York Mercantile Exchange. Exxon Mobil and Chevron each fell about 3 percent, while ConocoPhillips was down 2.6 percent.

Investors have been caught between optimism about early signs the recession is easing and pessimism about the pace of economic recovery. The labor report out this morning exacerbated concerns that the nation's workforce remains under assault and is unlikely to recover soon.

The number of jobs on employers' payrolls fell by 467,000 in June, according to a Labor Department report. That was significantly worse than analysts had expected. The unemployment rate rose to 9.5 percent, from 9.4 percent. Many economists expect that the rate will surpass 10 percent by fall.


The report suggests that hopes for an economic recovery during the second half of the year are "overly optimistic," Steven Ricchiuto, chief economist for Mizuho Securities, wrote in a research note. "Instead, the data is fully consistent with our forecast for a slower rate of decay in the economy. The worst of the contraction may be behind us but the economy is still in consolidation and will be through year end."

In one piece of upbeat labor news, the numbers of workers filing new claims for jobless benefits last week fell by 16,000 to 614,000, according to a Labor Department report out today. But the rate remains historically high and economists have said the number of workers needing unemployment insurance for an extended period is troubling.

Overseas stocks were also down. The FTSE 100 in London fell 2.6 percent and the Dax index in Germany fell 2.5 percent. Japan's Nikkei 225 average closed down 0.6 percent in trading Thursday.