Stocks Higher Despite Jobs Report

NEW YORK – Buyers returned to Wall Street Friday after two days of heavy losses, mindful of the economy’s growing problems but attracted by stocks’ lower prices. The Dow Jones industrial average rose nearly 200 points.

Analysts said the advance, which also came amid dour third-quarter reports from Ford and General Motors, was to be expected as Wall Street experiences a rocky recovery from October’s devastating selling.

Hank Smith, chief investment officer at Haverford Investments noted that the market was able to climb last week in the face of downbeat economic data, so the rebound on Friday didn’t come as a surprise.

“I think it’s absolutely part of the bottoming process,” Smith said. “The Oct. 10 low has been tested again a number of times.” The blue chips hit an intraday low of 7,882.51 on Oct. 10.

Despite the gains Friday, investors have not lost sight of the potential for a deep and protracted recession – and the day’s economic and corporate news underscored that possibility.

The Labor Department said the nation’s employers cut 240,000 jobs in October, hurtling the U.S. unemployment rate to a 14-year high of 6.5 percent. The market had expected employers to cut 200,000 jobs and for the unemployment rate to rise 6.3 percent.

Meanwhile, Ford Motor Co. reported a $129 million third-quarter loss and announced plans to cut more than 2,000 additional white-collar jobs. General Motors Corp. said it lost $2.5 billion in the quarter and warned that it could run out of cash in 2009. The struggling automaker also said it has suspended talks to acquire Chrysler.

Although the day’s news was worse than expected, investors were drawn by prices beaten down the past two sessions.

“We’re coming off of a very oversold market that had already braced itself for bad news out of Detroit and certainly bad economic data in terms of the labor report,” said Peter Cardillo, chief market economist at Avalon Partners.

The market appeared, at least for one session, to be repeating a recent pattern of rebounding after a huge loss – a pattern that analysts warned would prevail trading for some time to come.

Barack Obama’s election to the White House was preceded by a big rally, during which the benchmark Standard & Poor’s 500 index surged 18.3 percent in six sessions up through Tuesday. This was followed by a two-day loss of about 10 percent in the major indexes, including a 929-point drop in the Dow, as investors turned their focus once more to the economy’s woes.

“There are three factors that are driving this market: psychological, fundamental and technical,” Smith said. “The psychological is fear and panic. We’ve certainly seen that.”

The fundamental factor is investors don’t know exactly how the current credit crisis is going to affect the economy. And the technical factor that is playing in to the market is the forced selling from hedge funds and mutual funds that have to raise cash for redemptions, Smith said.

Nov. 15 is the cutoff for shareholders to notify fund managers of their intent to cash out investments before year-end, which means a sudden influx of “sell” orders could force funds into dumping more investments. Analysts expect this to continue to add to the volatility in the market.

In early afternoon trading, the Dow gained 169.25, or 1.95 percent, to 8,865.04.

The broader Standard & Poor’s 500 index added 17.50, or 1.93 percent, to 922.38, and the Nasdaq composite index rose 28.95, or 1.80 percent, to 1,637.65.

The Russell 2000 index of smaller companies rose 4.88, or 0.98 percent, to 500.72.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to a light 588.37 million shares.

The weak economic data on Friday reflects the freeze in the credit markets that began in mid-September following the bankruptcy of investment bank Lehman Brothers Holdings Inc., and the subsequent pullback in spending among fearful consumers. This has forced companies to cut jobs, said Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Conn.

“Comments that we’re hearing from CEOs when they report their earnings indicate that economic activity fell off the cliff,” he said.

When he assumes office early next year, President-elect Obama will inherit an economy marred by a housing collapse, mounting unemployment, hard-to-get credit and financial market upheaval.

Investors are watching closely for who Obama selects as the next Treasury Secretary, as well as who he appoints to key Cabinet positions. Additionally, investors are mindful of how the government’s $700 billion financial rescue package will be further implemented under a new administration.

Obama was meeting with economic experts on Friday to discuss the first steps toward fixing the broken economy.

To provide fresh relief, House Speaker Nancy Pelosi said Democrats will push for another round of economic stimulus later this month.

In other corporate earnings news, Sprint Nextel Corp. reported a loss of $326 million in the third quarter as it continued to hemorrhage customers. The nation’s third-largest wireless provided had posted a profit in the year-ago period. Shares dropped 47 cents, or 13 percent, to $3.21.

Investors also fled Ford and General Motors following their quarterly reports. Ford shares fell 7 cents, or 3.5 percent, to $1.91, while GM tumbled 66 cents, or 14 percent, to $4.14.

On Friday, the dollar fell against most other major currencies, while gold prices rose.

Light, sweet crude rose 61 cents to $61.38 a barrel on the New York Mercantile Exchange.

The three-month Treasury bill’s yield was at 0.31 percent, up slightly from 0.30 percent late Thursday. A low yield suggests high demand for safe assets.

The yield on the benchmark 10-year Treasury note rose to 3.78 percent from 3.69 percent late Thursday.

Bank-to-bank lending rates fell again, though, suggesting that banks are more willing to lend to one another – a positive signal for the tight credit markets. The London interbank offered rate, or Libor, for three-month loans in dollars dropped for the 20th straight day by 0.10 percent to 2.29 percent, the lowest level since November 2004.

In Asian trading, Japan’s Nikkei index fell 3.55 percent, and Hong Kong’s Hang Seng Index rose 3.29 percent. Britain’s FTSE 100 rose 2.69 percent, Germany’s DAX index rose 2.59 percent, and France’s CAC-40 rose 2.42 percent.