Stocks capped their third straight down week with a sharp drop Thursday as a weak jobs report muzzled all the green-shoots talk and investors hunkered down.
"The jobs report was weaker than expected and it throws a little cold water on the economic-rebound story," said Alan Gayle, senior investment strategest at RidgeWorth Capital Management. "I think the market is growing a little impatient with less-bad reports — The market was hoping for less-bad and it got worse than bad."
The Dow Jones Industrial Average lost 223.32, or 2.6 percent, to close at 8,280.74. The S&P 500 fell 2.9 percent and the Nasdaq shed 2.7 percent. Volume was light on this pre-holiday Thursday, with only about 733.6 million shares changing hands on the New York Stock Exchange. Typically, 1 to 1.2 million is considered low.
Trading was extended until 4:15 pm ET today to compensate for an earlier technical glitch.
For the week, the Dow dropped 1.9 percent. The S&P fell 2.5 percent and the Nasdaq skidded 2.3 percent. The CBOE Volatility Index, widely considered the best gauge of fear in the market, ended the week at 27.95 after falling below 25 earlier in the week.
All U.S. financial markets will be closed Friday for the Independence Day holiday.
All ten key S&P sectors finished the week lower, led by financials, basic materials and industrial companies.
AIG rose nearly 1 percent Thursday, but was the worst performer in the S&P 500 this week, sliding 38 percent, after a notice of the stock's suspension and delisting was erroneously posted for three hours on the NYSE site.
Crude oil slipped, ending the week at $66.73 a barrel. The dollar rose against most major currencies as investors, rattled by the weak jobs report, fled to the currency as a safe-haven play.
Employers slashed 467,000 jobsfrom nonfarm payrolls in June and the unemployment rate ticked up one-tenth of a percent to 9.5 percent. Economists had expected a much smaller job loss of 365,000 but a slightly higher unemployment rate of 9.6 percent.
The report indicates the "labor market is still terrible," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients. "[D]on't be swayed by small unemployment [rate] rise. Wages will soon be falling outright, a classic deflation signal," he said.
A separate report showed initial jobless claims fell by 16,000 last week to 614,000.
Meanwhile, factory orders jumped 1.2 percentin May, the largest increase in nearly a year.
Despite all these so-called green shoots we've been seeing, the financial system is crashing and the government has to take action quickly, Nassim Taleb, author of "The Black Swan," told CNBC Thursday.
"We're in the middle of a crash," Taleb said. "So if I'm going to forecast something, it is that it's going to get worse, not better."
The FDIC is voting on a new plan for investing in failed banks, which would require buyers to meet strong capital requirementsand agree to a long-term investment.
Still, with all the details of the government's plan for banks not yet ironed out, banks remained lower: Citigroup and Bank of America lost more than 3 percent, while Wells Fargo and JPMorgan shed more than 4 percent.
Ford slipped despite beating sales expectations. The company reported its U.S. sales fell 10.9 percentin June, near the top of expectations, and surpassed Toyota as the No. 2 automaker.
General Motors tumbled 9.6 percent after the automaker reported its sales 33.6 percent. Chrysler's plunged 44.2 percent, while Toyota and Honda both logged declines of about 30 percent.
Continental jumped 6.2 percent after Morgan Stanley upgraded its rating on the airline's stock to "overweight" from "equal weight."
Delta also ticked higher as Morgan Stanley resumed its coverage of the stock with an "overweight" rating.
In the pharmaceutical sector, Johnson & Johnson fell 1.9 percent following news that the comapny is going to invest $1 billion in Elan for an 18.4 percent stake in the Irish drug maker.
Boeing dropped 3.3 percent. The aerospace giant is in talks to buy operations of one of its main suppliers of parts for the 787 Dreamliner, in an attempt to gain more control over production, the Wall Street Journal reported.
Next week marks the unofficial start to earnings season, with a report from Alcoa due out after the bell Wednesday. Alcoa was the biggest percentage decliner on the Dow Thursday, falling 4.7 percent.
Investors will be looking at earnings but even more closely at companies' outlooks.
"Investors are writing off 2009 as a bad year ... and turning their sites to 2010," Gayle said.
On Tap for Next Week:
MONDAY: ISM services index
TUESDAY: Nothing major expected
WEDNESDAY: Weekly mortgage applications; weekly crude inventories; consumer credit; Earnings from Family Dollar, Alcoa
THURSDAY: Chain-store sales; weekly jobless claims; wholesale trade; Fed's Duke speaks; Earnings from 3Com
FRIDAY: Import/export prices; international trade; consumer sentiment