Stocks recoup losses a day after wild ride; European debt woes are still a worry

By Stephen Bernard, AP
Friday, May 7, 2010

Stocks mixed after wild day, Europe woes linger

NEW YORK — Turbulence is continuing in the stock market Friday, a day after some of the most volatile trading in history.

Stock prices fluctuated sharply, as they often do the day after a big slide. The Dow edged up about 7 points in early afternoon trading, bouncing back from a loss of nearly 280 points. Traders remained anxious amid questions about what caused Thursday’s sudden drop, which sent the stocks of several companies briefly to almost zero.

The market mostly looked past a surprisingly strong report on the U.S. jobs market and focused instead on Europe’s spreading debt crisis and Thursday’s plunge. The Dow Jones industrial average was down nearly 1,000 points Thursday afternoon — its largest one-day drop — before recovering two-thirds of its losses.

Technology stocks were particularly hard hit following reports that Nokia Corp. was broadening its legal fight against rival cell phone maker Apple Inc. to include the iPad, Apple’s new hit product. Apple shares fell 2 percent in heavy trading.

Meanwhile Europe’s debt problems again weighed on stocks. Germany’s parliament approved Berlin’s share of the rescue package after a boisterous debate. However, investors still fear that Greece may not make a May 19 deadline to make a debt repayment.

Investors’ concern goes far beyond Greece, the smallest economy in the European Union. A further loss of confidence in European government debt could have an impact on other weak countries like Portugal, potentially requiring another difficult bailout process. The debt crisis has already badly undermined Europe’s shared currency, the euro.

“You’re not concerned about the kid with the cold, but how he spreads it to the rest of the class,” said Len Blum, a managing partner at investment bank Westwood Capital. Blum noted that Greece’s debt problem could be similar to the subprime mortgage meltdown in the U.S., which quickly spread to other parts of the financial system.

In early afternoon trading the Dow edged up 7.26, or 0.1 percent, to 10,527.58. In earlier trading, it was down 279.

The Standard & Poor’s 500 index fell 0.43, or less than 0.1 percent, to 1,127.72, while the Nasdaq composite fell 13.43, or 0.6 percent, to 2,306.21.

Falling stocks narrowly outpaced gainers on the New York Stock Exchange, where volume was a heavy 1.1 billion shares.

Friday’s trading left the Dow down about 4 percent for the week and barely in the black for the year. The S&P was also down about 5 percent, while the Nasdaq was off 6 percent. The S&P and Nasdaq were also both still positive for 2010.

The week’s losses would put the market about halfway through what experts call a “correction,” usually defined as a drop of between 10 percent and 20 percent following a sustained rise.

Stocks have been on a nearly uninterrupted upward path since March of last year, when indexes hit 12-year lows. Analysts have been predicting a correction for months, only to see the market bounce back after brief periods of decline.

Long-term market watchers actually welcome occasional pullbacks in the market, saying that gives investors opportunities to pick up shares at bargain prices.

“A corrective phase is in play,” said Rob Lutts, president and chief investment officer at Cabot Money Management.

If he’s right, this correction would be far faster than the historical average. “We used to take weeks and months to do what we now do in days,” Lutts said.

In economic news, the Labor Department reported that employers added 290,000 jobs last month, far more than expected and the biggest jump in four years. However the jobless rate rose to 9.9 percent from 9.7 percent as more people looked for work.

The big improvement in the jobs report brought some clarity to the biggest question remaining for the U.S. economy: When employers would start hiring again. Despite positive signs in manufacturing and housing, job creation has been lagging far behind other sectors of the economy, a worrisome point for economists. Friday’s report may help change that perception.

“It’s a good-size number and it had a lot of breadth,” said John Silvia, chief economist at Wells Fargo. “There isn’t a double-dip out there. The employment situation suggests that we have a sustained economic recovery in the U.S. Companies are hiring people.”

Apple fell $4.81, or 2 percent, to $241.44.

Oil fell, and gold rose. The dollar was mixed against most currencies, but the euro clawed back some ground against the dollar after several days of declines.

European markets were broadly lower.

The declines were deepest in France, where the CAC-40 index tumbled 4.6 percent. Germany’s DAX fell 3.3 percent and Britain’s FTSE 100 fell 2.6 percent. Japan’s Nikkei fell 3.1 percent.

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