The highly anticipated jobs report came in much better than expected but the news took a back seat to yesterday's alarming volatility. People are still asking, "what happened on Thursday?" to cause a nearly 1,000 point decline in the Dow Jones Industrial average. Volatility remains front and center with the DJIA sinking 279 points Friday morning and the NASDAQ off almost 4% before both indices pared their losses. Fears over Greece and a potential default remain in spite of news that Germany has voted to fund their portion of the Greek bailout package. The euro's slide appears to have stalled and that has put a cap on the dollar's rally. Crude oil is off more than 2% near $75 a barrel. Gold futures are up a few points near $1,200 an ounce. Overall investors remain cautious and seem unwilling to really buy this weakness ahead of the weekend.
Foreign markets were down across the board. Asian markets continued to drop as traders reacted to yesterday's plunge in the U.S. markets. The Chinese Shanghai index slipped 1.8% to close at seven-month lows. The Hong Kong Hang Seng fell another 1% to close under the 20,000 mark. The Hang Seng is off more than 10% in the last four weeks. The Japanese NIKKEI index, the strongest looking Asian market, plunged over 3% on Friday and appears to be headed for its 200-dma.
Speaking of technical support at the 200-dma, these support levels did not hold in Europe. Most of the major European averages gapped open lower on Friday morning and accelerated lower into the afternoon and closing bell. Investors are still worried that Greece's debt problems will spread across the euro zone. There is uncertainty surrounding the British elections that left the country without any clear winners. This will be the first time in over 35 years that one political party does not have a significant majority. Meanwhile Germany's finance minister Wolfgang Schaeuble convinced law makers that they needed to vote in favor of a bailout package for Greece. Mr. Schaeuble suggested that "any other alternative" would eventually cost Germans a lot more down the road. Germany's parliament passed the measure granting Greece $28.6 billion in credit over the next three years as part of the larger EU and IMF aid package. In spite of the vote in favor of the Greek bailout markets are concerned that Greece will not be able to meet its May 19th deadline for its next debt payment. At the end of the day the German DAX index fell 3.2% and broke down under its 200-dma. The English FTSE lost 2.6% and also broke down under its 200-dma. The French CAC-40 closed down 1.37%.
The major economic report today was the April jobs report. The Labor Department said the U.S. gained 290,000 jobs. This was the biggest jump in almost four years and well ahead of estimates for a gain of 185,000 jobs. Temporary census workers accounted for 66,000 jobs. More importantly that left about 224,000 jobs created by the private sector, which is a very positive sign and suggest the economy's rebound is gaining traction. The manufacturing sector saw its biggest increase in new jobs since 1998. The recent economic strength in the U.S. has inspired thousands of out-of-work citizens to resume their search for a job. A surge of over 800,000 jobseekers pushed the unemployment rate from 9.7% to 9.9%. Unfortunately, unemployment remains high with more than 15 million people out of work. Those out of work more than six months hit 6.7 million, which is a new all-time high.
In other news the SEC and the CFTC are both investigating yesterday's extreme volatility. There has been plenty of finger pointing. Not everyone believes it was caused by human error when a trader "fat-fingered" a trade and hit the "b" button for billions instead of "m" for millions. Many pundits point to the widespread fear over Greece and the ECB's lack of action that set the stage for a computerized sell program, which suddenly gained momentum. Computerized high-frequency trading has been blamed because the machines running these complex trading algorithms can react in milliseconds. Program trading already accounts for the majority of daily trading volume and market experts claim these systems provide liquidity. Unfortunately there was an extreme lack of liquidity during the plunge on Thursday. Several stocks were cut in half and a few actually fell to almost zero in a matter of minutes. Accenture (ACN) dropped from $40 to $0.01 and is one of dozens of stocks that the NASDAQ and NYSE are cancelling trades during the meltdown.
Technically the markets continue to look weak but they are off their worst levels of the session. As mentioned earlier the DJIA fell almost 280 points this morning but managed to rebound near its 200-dma. The NASDAQ composite dropped 3.9% with a dip to 2,228 before rebounding. The S&P 500 index retested support near the 1100 area and its simple 200-dma and exponential 200-dma. The small cap Russell 2000 index fell back toward what should be support near the 650 level on Friday morning before paring its losses. The Transportation sector index tagged its 100-dma this morning and bounced. The SOX semiconductor index hit its 200-dma and rebounded. The damage in the U.S. banking sector indices doesn't look that bad.
Corrections of 5% to 10% are normal and while this one has occurred a lot faster than many expected investors might be looking to buy this dip in the S&P 500 next week as long as stocks don't collapse Friday afternoon.
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index: