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Stocks Close Sharply Lower On Disappointing Jobs Data - U.S. Commentary

After moving sharply lower at the open, stocks saw continued weakness throughout the trading day on Monday. A negative reaction to Friday's monthly jobs report weighed on the markets, generating broad based selling pressure.

The major averages climbed well off their worst levels of the day but still closed firmly in negative territory. The Dow fell 130.55 points or 1 percent to 12,929.59, the Nasdaq dropped 33.42 points or 1.1 percent to 3,047.08 and the S&P 500 slid 15.88 points or 1.1 percent to 1,382.20.

The sell-off seen at the start of trading came as traders finally had an opportunity to react to the Labor Department's monthly jobs report, which was released while the markets were closed on Friday.

The Labor Department said that non-farm payroll employment increased by 120,000 jobs in March, while economists had expected the addition of about 201,000 jobs

Despite the weaker than expected job growth, the unemployment rate unexpectedly edged down to 8.2 percent in March from 8.3 percent in February. With the unexpected drop, the unemployment rate fell to its lowest level since coming in at 7.8 percent in January of 2009.

However, James Knightley, senior economist at ING, noted that the drop in the unemployment rate was "only caused by the size of the workforce falling by less than the drop in the number of people unemployed, with household employment down 31,000."

The disappointing jobs data led to renewed concerns about the economic outlook and inspired some traders to cash in on the strong upward move seen in recent months.

In corporate news, shares of AT&T (T) fell by 1 percent after the telecom giant announced that it has agreed to sell its AT&T Advertising Solutions and AT&T Interactive units to an affiliate of Cerberus Capital Management.

Under the terms of the agreement, AT&T will receive a 47 percent equity interest in the new entity, YP Holdings LLC.

Meanwhile, AOL Inc. (AOL) jumped 43.3 percent after announcing an agreement to sell over 800 of its patents and their related patent applications to Microsoft (MSFT) for more than $1 billion. The company said it intends to return a significant portion of the sale proceeds to shareholders.

Sector News

While significant weakness was visible in a variety of sectors, health insurance stocks turned in some of the market's worst performances on the day. Reflecting the weakness in the health insurance sector, the Morgan Stanley Healthcare Payor Index plummeted by 7.2 percent.

Molina (MOH) and Centene (CNC) helped to lead the insurance sector lower, tumbling by 26.7 percent and 15.4 percent, respectively. The losses come after Ohio did not select the companies to administer its Medicaid program.

Biotechnology stocks also saw substantial weakness, resulting in a 2.5 percent drop by the NYSE Arca Biotechnology Index. Within the sector, InterMune (ITMN) fell by 15.6 percent after revealing that a key clinical trial for its lung disease drug Esbriet has been delayed.

Considerable weakness was also visible among financial stocks, with the NYSE Arca Broker/Dealer Index and the KBW Bank Index both falling by 1.9 percent.

Healthcare provider, chemical, transportation, and natural gas stocks also posted notable losses amid the broad based selling pressure. Meanwhile, gold stocks bucked the downtrend amid an increase by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved lower on Monday, although several markets were closed for public holidays. Japan's Nikkei 225 Index fell by 1.5 percent, while China's Shanghai Composite Index dropped by 0.9 percent.

Meanwhile, the major European markets all remained closed on the day amid a continuation of the long holiday weekend.

In the bond market, treasuries saw some further upside after showing a strong upward move in Friday's abbreviated session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 1.3 basis points to 2.037 percent.

Looking Ahead

Trading on Tuesday could be impacted by the Commerce Department's monthly wholesale inventories report along with speeches by a number of Federal Reserve officials.

Additionally, aluminum giant Alcoa (AA) is scheduled to release its first quarter results after the close of trading on Tuesday, marking the unofficial start of earnings season.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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