Stocks declined Friday after a report showed the unemployment rate shot up to a five-year high in August, adding anxiety to a market already jittery about the outlook for the economy.
All three major indexes -- the Dow Jones Industrial Average, S&P 500 and Nasdaq -- ended Thursday in bear-market territory, 20 percent below their October highs, and continued to slide Friday. However, the Dow held in a range of down 40 to 80 points, not as severe as futures had indicated. That suggests that much of the worry may already be priced into the market after the Dow's nearly 350-point rout in the prior session.
Just two Dow stocks were higher. Click here to see which ones they were and which stocks were the biggest Dow losers.
Nonfarm payrolls fell by 84,000 in August, a bigger drop than the 75,000 expected. The unemployment rate jumped to 6.1 percent, the highest since September 2003, when economists had expected it to hold at 5.7 percent. Manufacturing shed 61,000, the most since July 2003. See a breakdown by sector of where the jobs were lost.
This was the second gigantic leap in the unemployment rate this year, the first being the jump from 5 percent to 5.5 percent in May, which was the biggest monthly drop since February 1986. Typically, the unemployment rate moves by only one- or two-tenths of a percent.
The report "reinforces the idea ... that the U.S. economy is about to enter a dark period, with economic activity slipping substantially from the second quarter's 3.3% pace and perhaps set to contract in the fourth quarter," wrote Tony Crescenzi of Miller Tabak in a note to clients.
Crescenzi notes that the unemployment rate has soared past the Fed's projections of 5.5 percent to 5.7 percent for 2008 and 5.3 percent and 5.8 percent for 2009. This could lead to a Fed rate cut this year, he says, though it's more likely that the central bank will wait to see if "the economic situation worsens materially."
Th dismal jobs report followed a pair of disappointing readings on employment on Thursday: Initial jobless claims rose by 15,000 last week, snapping a three-week declining streak, and ADP payroll service reported that private employers cut 33,000 jobs from their payrolls in August.
That sent the market into a downward spirl, with all three major indexes losing 3 percent or more in Thursday's trading.
(Worried about your own job? Click here to find out what sectors are most at risk.)
Merrill Lynch tumbled about 4 percent Friday after Goldman Sachs slashed its forecastand cut its rating on the brokerage to "sell," saying it sees a fresh wave of writedowns coming.
In addition to the jobs report, the market was buzzing about some M&A news.
Altria is in advanced talks to buy UST, the maker of the popular Skoal and Copenhagen smokeless tobacco brands, for more than $10 billion, the New York Times reported. UST shares surged 24 percent.
SanDisk soared 28 percent following news that Samsung Electronics, the world's top maker of memory chips, might buy the flash-memory-card maker.
However, the SanDisk news wasn't enough to perk up the tech sector, where the warnings continue to pile up.
Nokiawarned that its market share is going to take a hitin the third quarter amid softness in the global economy and tough competition. Analysts said Nokia, the world's top mobile-handset maker, hasn't been as aggressive with pricing as some of its competitors.
This followed profit warnings earlier in the week from networking-gear maker Ciena and Corning, the world's largest maker of glass for liquid-crystal displays for televisions and computers, as well as comments from the CEO of chip maker Qualcomm that the company is seeing signs of users slowing their cellphone upgrades.
Dell , which kicked off this latest round of warnings last week when it issued disappointing results and warned of a global slowdown, now says it plans to sell its computer factoriesaround the world in order to cut costs and improve its profitability. Analysts said Dell's problem was that it cut prices too much in an attempt to grab — or buy — more market share.
Pacific Investment Management, or Pimco, the manager of the world's biggest bond fund, named Mohamed El-Erian as its chief executive to replace Bill Thompson, who will retire at the end of the year.
Asian stocks got hammered, with Japan shedding 2.8 percent, while European markets extended their losses with banks falling after the European Central Bank said it would tighten rules for collateral at its liquidity actions.