Market slide prompts questions about recovery

The bull stumbled Friday.

Stock prices fell and bond yields plummeted Friday as Wall Street reacted to a jarring jobs report that caused some pundits to question the staying power of the economic recovery. The down day brought an end to some significant winning streaks among the major stock gauges, including a seven-day skein by the NASDAQ composite that marked the tech-heavy index's longest string of up days in 3 1/2 years.

August employment figures, released Friday, showed that while the unemployment rate fell slightly to 6.1 percent from 6.2 percent, the economy actually lost 93,000 jobs during the month. Wall Street, which had been expecting between 12,000 and 20,000 jobs to be created, reacted with its first sell-off in two weeks.

The Dow Jones industrial average fell 84.56 points, or 0.9 percent, to 9,503.34. The Standard and Poor's 500 index, which was riding an eight-day winning streak, dropped 6.58 points, or 0.6 percent, to 1,021.39. The NASDAQ, which hit a 17-month high Thursday, fell 10.73 points, or 0.6 percent, to 1,858.24.

Losers led winners by about 6 to 5 on the New York Stock Exchange and by 9 to 7 on NASDAQ in active trading.

Despite the day's losses, the S&P 500 gained 1.3 percent for the week, while the Dow added 0.9 percent and the NASDAQ rose 2.6 percent.

Meanwhile, bond yields, a key gauge of the direction of interest rates, sank as the weak employment report quieted some fears about whether the improving economy would drive up inflation.

The yield on the benchmark 10-year Treasury notes fell to 4.35 percent from Thursday's close of 4.51 percent. The yield on the two-year T-note dropped to 1.71 percent -- a one-month low--from 1.89 percent.

Stock prices have been on a near-relentless rise since March, thanks to a steady stream of positive economic reports. But because stock prices were rising so far, so fast, the market really needed "blow-out" employment numbers to sustain the rally, said Kevin Marder, chief market strategist at Ladenburg Thalmann Asset Management in Los Angeles.

"Obviously, we didn't get that," he said. "A lot of people saw this as the time to take some chips off the table."

Adding to the downbeat mood, the FBI released information about four wanted terrorists, while President Bush announced he would address the nation over the weekend about Iraq. That, too, contributed to investor jitters, Marder said.

Most analysts saw Friday's slump as a minor correction, rather than a turning point. But the unwelcome surprise of the unemployment report left some analysts concerned that the economy might not be able to muster the strength needed to sustain additional big gains for stocks this year.

Indeed, if the jobs picture doesn't improve over the next few months, the nation's economic health -- and with it, stock prices -- might begin to fade, said Larry Wachtel, market analyst with Wachovia Securities in New York.

"Is the bull market over? I would say no. But if you want to talk about things that go bump in the night, the question is whether the bull market is sustainable," he said. "We have economic stimulus from tax cuts and lower interest rates coming through, but you have to ask what will happen when the stimulus starts to fade.

"Will the vigor will last without new hiring? That's the $64,000 question for 2004."