Major U.S. stock indexes each tumbled nearly 3% Friday as a surge in crude oil prices to fresh record highs and a weaker-than-expected May U.S. jobs report heightened investors' worries about inflation and the economy.
Bonds, which plunged Thursday as stocks rallied, soared in a flight to safety from the weakness in equities. Gold finished higher.
The dollar index was lower, while the euro was higher as the European Central Bank indicated it may raise interest rates.
On Friday, the blue-chip Dow Jones industrial average sank 394.64 points, or 3.13%, to end the session at 12,209.81. Transportation issues were among the hardest hit, although all Dow components fell. The broader S&P 500 index shed 43.37 points, or 3.09%, to finish at 1,360.68. The tech-heavy Nasdaq composite index declined 62 points, or 2.43%, to close at 2,487.94.
Activity in the broader market was resoundingly negative. On the New York stock exchange, 26 stocks were lower in price for every six that gained. The ratio on the Nasdaq was 23-5 negative.
“It was a fairly quiet week until Thursday and Friday, when all hell broke loose,” says S&P chief technical strategist Mark Arbeter. “The rebound in crude, along with the
spike in the May unemployment rate, was too much for the stock market to take in one day, so today was just plain ugly.”
Among the groups suffering significant losses in Friday’s rout: The S&P Airlines index was down 4.3% as the industry, which had a couple of days of positive results, felt renewed pressure from the spike is crude oil.
The S&P Homebuilders index fell 6.4% amid pres reports of record levels of mortgage delinquencies and foreclosures in the first quarter.
The S&P Regional Banks index fell 4.1% on a Wall Street Journal report that National City’s (NCC) banking unit, which has been buffeted by rising bad loans, has recently entered into a "memorandum of understanding" with federal regulators, effectively putting the bank on probation.
The S&P Multi-line Insurance index sank 3.9% on weakness in shares of American International Group (AIG) on reports that the SEC is investigation whether AIG overstated the value of contracts linked to subprime mortgages.
Crude oil staged an extraordinary recovery from its recent slump. July West Texas Intermediate crude-oil futures were up $11.13 a barrel in late trading Friday to a record $138.92, spurred by heightened tensions in the Middle East and Asia and a weaker US dollar.
Market watchers said crude oil scored one of its biggest one-day gains ever after Shaul Mofaz, Israel's transportation minister and a contender for the post of prime minister, told the daily newspaper Yediot Ahronot that Israel will have to attack Iran if it doesn't abandon its nuclear development. In addition, Morgan Stanley issued at note stating current crude oil shipping patterns are suggesting WTI oil could reach $150 per barrel by July 4.
The oil run-up was a carryover of Thursday's late $5.49 surge that had Rep. Bart Stupak (D., Mich.) complaining oil and products markets were being "manipulated" by the biggest trading houses in the futures markets. But he said a probe hasn't uncovered illegal activity. Wall Street firms denied the charges.
U.S. nonfarm payrolls fell 49,000 in May, in line with market expectations. Both April and May were downwardly revised to -28,000 and -88,000, respectively (-20,000 and -81,000 previously).
The big surprise in the report: The unemployment rate jumped to 5.5% from 5.0% in April, and was well above the 5.1% expected.