Stocks Plunged on Jobs Report Disappointment and European Fears. Dow Laggards: CAT, AXP, BA, AA, and GE

Published on Friday, 04 June 2010 18:25 Written by Christopher Lynn

New York, June 4^th (TradersHuddle.com) – Stocks tumbled, with the Dow finishing below the 10,000 level and the S&P 500 hitting a 4-month low, after a disappointing labor market report signaled weaker economic growth and discouraged Americans leaving the workforce. Fears that the European debt crisis is spreading through the continent pushed the euro below the $1.20 level, sparking a move to safe haven assets.

The market started in negative territory with Bears firmly in control. Before the open, futures turned negative ahead of May’s employment report as Hungary sparked renewed concerns over sovereign debt in Europe.

Global market participants sold stocks upon learning that officials from Hungary stated that economic conditions in their country are grave and that talk of default is not an exaggeration. Since the country is not planning any austerity measures it spurred speculation that the European Union might need to provide a bailout. Even though Hungary is not part of the euro, its situation undermined the euro zone currency, which dropped below the $1.20 level to post a fresh 4-yearlow at $1.1956, as the country’s troubles highlighted the dire fiscal and financial conditions throughout Europe.

Adding to the bearish sentiment before the open, the Labor Department employment report for May showed a gain of 431,000 jobs, below the expected 536,000 gain. Adding to the disappointment only 41,000 jobs were added by the private sector, as the bulk of job creation came from government hiring for its census effort. The unemployment rate made surprise move lower to 9.7%, but investors viewed the drop as Americans exiting the labor force.

Broad selling permeated through out the session, with S&P 500 key sectors and all 30 Dow components posting declines. Industrials led the way falling 4.6% as a group, with Caterpillar (NYSE:CAT), the largest earthmoving equipment maker in the world, tumbled 5.48% to $57.76, posting the biggest percentage decline in the Dow Jones Industrial Average, as a disappointing jobs report and European fears dampened economic growth optimism.

Energy and raw material stocks fell at least 3.4%, as market participants sold equities and commodities as they adjusted economic growth expectations. Alcoa (NYSE:AA), the aluminum producer, fell 4.66% to $10.84. Alcoa was the 4^th worst Dow component as traders sold metal prices and raw material stocks on concern over economic growth.

Crude oil tumbled the most in 4 months, after the Labor Department’s payroll report was weaker than expected and the euro plunged to a fresh 4-year low. The contract for July delivery fell $71.51 a barrel.

Treasuries rallied as demand for safe haven increased. A jobs report that signaled weaker economic growth and discouraged Americans exiting the labor force, and fears that the European sovereign debt crisis is spreading spurred investors into the relative safety of the U.S. government debt. The yield on the benchmark 10-year note plunged to 3.20%.

American Express (NYSE:AXP), the largest U.S. credit card issuer in terms of value of transactions, slid 5.25% to $38.41, posting the second largest decline in the blue chip index. Financial stocks also took a hit, on the European debt jitters. American Express moved sharply to the downside, as a weak labor market does not bode well for the card issuer that depends greatly in consumer spending for its credit card transactions.

The third worst Dow component was Boeing (NYSE:BA), the 2^nd largest commercial aircraft maker in the world, as shares dropped 4.91% to $61.15. Boeing fell along the industrial sector on concern over slow economic growth. It also said that it plans to boost international sales to offset weakness in the U.S. as the government reins in defense spending.

The fifth worst Dow component was General Electric (NYSE:GE), as shares of the diversified conglomerate maker of power turbines and energy efficient locomotives fell 4.50% to $15.71. GE moved lower along the industrial sector on concern the stock market valuations and the sector have moved ahead of themselves and were not pricing the correct stage in the economic recovery.