Job, factory data rout market

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By David M. Dickson and William Ehart THE WASHINGTON TIMES

A double dose of bad economic news spooked Wall Street on Thursday, ushering in the dreaded month of October with the market's worst sell-off since July.

The Dow shed 203 points, or 2.1 percent, to close at 9,509.28. The broad-based Standard & Poor's 500-stock index lost 27.23 points, or 2.6 percent, and finished the day at 1,029.85. The tech-heavy Nasdaq Composite Index dropped 64.94 points, or 3.1 percent, closing at 2,057.48.

Bad news on jobs and in factories ignited the market rout.

Analysts differed on whether Thursday's action was the start of an overdue pullback or a harbinger of Halloween on Wall Street.

The Dow vaulted 1,265 points, or 15 percent, in the third quarter that ended Wednesday, its best July-September performance since the Great Depression and the best quarter overall since 1998.

Even with Thursday's fall, the Dow is up 45 percent from its March 9 low.

Gary Alexander, a senior writer with Navellier and Associates in Reno, Nev., has argued since early August that the market was due for a rest but that investors should not fear the "Sept-ober Curse" this year.

The Dow fell 20 percent in the first seven trading days of October 2008 after the failure of major financial firms such as Lehman Brothers and AIG the previous month, he said. The Dow ended the month down 16 percent.

But even including that debacle, stocks have risen in October in five out of the past seven years, Mr. Alexander wrote in his Navellier.com blog.

Others see trouble ahead.

"I think the market is actually very nervous. I think this is going to be a very tough month," New York Stock Exchange trader Ben Willis of VDM Institutional Brokerage told Fox Business Channel on Thursday. "There is a great deal of concern whether or not this market in October will be able to hold this level."

Initial claims for unemployment benefits increased last week, while the pace of manufacturing's expansion slowed in September, indicating the economy's nascent recovery will not be strong enough to stabilize a very weak labor market anytime soon.

First-time claims for jobless benefits jumped by 17,000 to 551,000 last week, the Labor Department reported Thursday. The increase, which followed three weeks of declines, was greater than economists expected.

"This is progress from the March peak of 674,000 and keeps the labor market on track to stabilize by the middle of next year," said Andrew Gledhill, an economics analyst at Moody's Economy.com. "If by that time initial claims are not below 400,000, that will be a warning sign that the labor market is not progressing as needed."

Noting that many workers are signing up for supplemental benefits after their regular benefits expired, Mr. Gledhill said, "The labor market trend is less heartening."

Federal Reserve Chairman Ben S. Bernanke told a House committee Thursday that "most forecasters, including the Fed, are currently looking at growth in 2010, but not growth so rapid as to substantially lower the unemployment rate." The jobless rate reached a 26-year high of 9.7 percent in August.

The Labor Department will report the September unemployment rate Friday.

The Institute for Supply Management reported Thursday that its gauge of manufacturing activity declined from 52.9 in August to 52.6 in September. Readings above 50 indicate expansion, but September's decrease in the index revealed that the pace of manufacturing's expansion had slowed down.

"The pullback in momentum in the manufacturing sector simply reflects the reality that when you strip away the various fiscal stimulus programs and measures, there is not much underlying strength in spending in the economy," said Brian Bethune, chief U.S. financial economist for IHS Global Insight.

As investors exited stocks, they increased their purchases of Treasury securities, sending their prices up and yields down. The yield on the 10-year Treasury note declined 12 basis points to 3.19 percent, and the 30-year yield fell below 4 percent for the first time since April, settling at 3.96 percent.