Stocks Rally Despite Awful Jobs Report

Major indexes initially sank Friday after U.S. nonfarm payrolls plunged 533,000, but bounced back late in the session

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U.S. stocks rallied late in Friday's session, bouncing back from sharp declines in the morning when a government report showed a steep deterioration in the jobs market. The data provided more signs that the U.S. is heading deeper into recession.

The Labor Department said Friday employers cut 533,000 more jobs in November -- the most since 1974. Analysts were expecting 320,000 job cuts. The unemployment rate is up to 6.7% from 6.5% in October.

Investors fear higher unemployment will lead to a more severe pullback in consumer spending, which is a crucial component to helping the economy rebound.

However, by late afternoon, traders had shrugged off those worries and were buying again. Recent extreme volatility in the market has made such midday reversals almost seem routine for stock investors.

On Friday, the Dow Jones industrial average rose 259.18 points, or 3.09%, at 8,635.42. The broad S&P 500 index rose 30.85 points, or 3.65%, to 876.07. The tech-heavy Nasdaq composite index gained 63.75 points, or 4.41%, to 1,509.31.

If the late-day rally had any logic, it might be attributed to a realization that the U.S. is already deep into recession -- and thus might be that much closer to a recovery. "It's deep and it's painful, but I'm hopeful we're out of it by the third quarter" of 2009, says Peter Cardillo, chief market economist at Avalon Partners.

Though job losses could continue and the unemployment rate could rise to 7.5% or 8%, Cardillo believes November's figures are likely to be the climax of job-cutting.

S&P's MarketScope attributed Friday's rally partly to bargain hunting and short covering, with technology, retail and financial shares leading the way. On the New York Stock Exchange, 22 shares were higher for every nine losing value. On the Nasdaq, the ratio was 19-9 positive.

Bond prices fell Friday. Energy issues were falling in step with a drop in crude oil prices.

The dollar index moved higher following the huge payrolls drop. Gold futures were lower.

European stocks finished sharply lower after the U.S. jobs report, with major indexes falling 2.74% in London, 5.48% in Paris, and 4.00% in Frankfurt. Asian stocks finished mixed, with Tokyo stocks falling 0.08%, Hong Kong up 2.49%, and Shanghai higher by 0.86%.

The job reductions were the most since a whopping 602,000 positions were slashed in December 1974, when the country was in a severe recession.

October's job loss count was revised to -320,000 from -240,000, reports Action Economics, and September's was revised to -403,000 from -284,000, for a net -199,000 revision.

Average hourly earnings rose 0.4% after a 0.3% increase in October (revised from 0.2%). The workweek fell to 33.5 from 33.6 previously. Household employment plunged 673,000. Total private sector jobs declined 540,000, with the goods producing sector dropping 163,000 jobs; manufacturing lost another 85,000 jobs. Construction jobs fell 82,000. Employment in the service producing sector declined 370,000. Government added 7,000.