An unemployment report showing the US economy didn't gain any jobs in August coupled with investors' reluctance to stay in the market over the holiday weekend sent stocks plunging 2 percent Friday.
The major averages turned lower for the week, erasing their gains from the last few sessions.
The Dow Jones Industrial Average fell, led by Bank of America and JPMorgan , after kicking off September with a weak start.
The S&P 500 and the Nasdaq also declined sharply. The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped near 34.
Major indexes are on track to posting the worst two-day start to September since 1974.
All 10 S&P sectors were in the red, led by financials and energy.
“We’re going to take out some of the near-term support areas,” Art Cashin, director of floor operations at UBS Financial Services told CNBC. “If we got terribly bad and we go down to 1270-75 [on the S&P], then you’d see warning signals go off. So as long as they can stay above that level, they can possibly regroup and come back.”
Employment growth ground to a halt in August as non-farm payrolls were unchanged, according to the Labor Department. It was the first time since World War II that the economy had no jobs created for a month. The jobless rate held steady at 9.1 percent.
About 45,000 jobs were impacted by the massive strike a few weeks ago at Verizon . But payrolls were weak even without the one-time impact from Verizon, and fears grew that the US was heading toward its second recession in three years.
"Today's jobs report represents what many realists already have known: There's a tremendous lack of confidence in consumer-related companies," said Todd Schoenberger, managing director at LandColt Trading. "The country desperately needs the President to be a positive influence [next] Thursday."
The dismal employment news comes ahead of President Obama's speech to a joint session of Congress next week to unveil proposals to create new jobs. Some economists are skeptical Obama will get Congress to agree to significant new spending on jobs.
Financials were under heavy pressure following a NYT report that the Federal Housing Finance Agency is suing big banksincluding Bank of America,JPMorganChase , Goldman Sachs and Deutsche Bank , accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble.
Separately, the Fed has asked Bank of America to show what measures it could take if business conditions worsen, according to the Wall Street Journal, adding to the bank's sharp decline.
Elsewhere, Netflix plunged after key-revenue source Starzbroke off talks to renew its streaming deal with the online video service.
Meanwhile, AT&T is expected to propose a new solution to U.S. antitrust regulators to save its $39 billion acquisition of T-Mobile USA, according to sources. Earlier this week, the Justice Department filed to block the telecom giant's takeoverof T-Mobile, saying the merger will hurt U.S. consumers, according to reports.
Oracle slipped for a second day after a U.S. judge ruled that the tech giant's $1.3 billion verdictagainst SAP was "grossly excessive."
On the earnings front, Campbell Soup posted a lower-than-expected profit, due to restructuring charges and a decline in sales. And H&R Block dropped almost 10 percent to lead the S&P laggards after the tax preparer reported a wider-than-expected quarterly loss.
Gold jumped more than 2 percentto trade above $1,873 an ounce as investors rushed into the precious metal as a safe-haven play following the weak jobs report. Meanwhile, oil prices slumped broadly.
European shares closed lowerfollowing the dismal U.S. jobs report. Meanwhile, Greece and its international lenders said that the country will miss its budget deficit target this year, adding to concerns that the region's sovereign debt crisis may worsen.
—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—
On Tap Next Week:
MONDAY: Labor Day Holiady—All Markets Closed
TUESDAY: ISM non-mfg index, Fed's Kocherlakota speaks; Earnings from PepBoys
WEDNESDAY: Weekly mortgage applications, Beige Book; Earnings from Hovnanian
THURSDAY: BoE announcement, ECB announcement, international trade, jobless claims, quarterly services survey, oil inventories, Bernanke speaks, consumer cerdit, TI mid-quarter update, OECD's global economic outlook, Obama talks jobs/economy; Earnings from Smithfield Foods
FRIDAY: McDonald's August Sales, wholesale trade, G7 finance ministers meet; Earnings from Kroger, Lululemon Athletica
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