MarketView for April 5

Summary

Stocks ended their worst week this year with losses on Friday after a weaker-than-expected jobs report undermined confidence in the economy and first-quarter earnings growth. The S&P 500 was down 1 percent for the week. All but three of the S&P 500's 10 industry sectors posted declines. Additionally, for the week the Dow Jones Industrial Average fell 0.1 percent while the Nasdaq was down 1.9 percent.

The jobs data, which showed employers hired at the slowest pace in nine months, was the latest in a series of disappointing economic reports. The government's job report showed 88,000 jobs were added in March, less than half economists' average forecast of 200,000. The unemployment rate dipped to 7.6 percent from 7.7 percent, largely due to people dropping out of the work force.

Companies begin to report quarterly earnings next week, which is likely to be another concern for investors in light of recent economic data. Analysts' estimates for earnings growth in the first quarter have fallen since late last year, according to Thomson Reuters data.

Stocks had been rallying on the Fed's promise to keep providing stimulus and on mostly improving U.S. economic data. The S&P 500 is up 8.9 percent since the start of the year.

The S&P's largest percentage decliner was network gear maker F5 Networks, which fell 19 percent to $73.21 a day after forecasting quarterly earnings and revenue well below Wall Street's expectations. Several of F5's competitors were also sharply lower, with Juniper Networks closing down 3.1 percent at $17.55 and Citrix Systems down 1.2 percent at $68.90.

Airline stocks were hit after J.P Morgan cut its revenue expectations for the airline industry by 2 to 3 percent for 2013 and 2014 and said it expects monthly revenue per available seat mile to turn negative for some airlines, partly due to the federal government's automatic spending cuts. As a result, Delta was down 2.4 percent to close at $14.39, while United Continental fell 0.1 percent to $29.27.

Approximately 6.4 billion shares changed hands on the three major equity exchanges, as compared to an average daily closing volume of about 6.36 billion this year.

Job Numbers Weak

Employers hired at the weakest pace in nine months in March, leading to the conclusion that the tax hikes that kicked in early this year as part of Washington's austerity drive could be stealing momentum from the economy.

A report on Friday by the Labor Department indicated that payrolls expanded by just 88,000 last month outside the farming sector. That number was well below market expectations for a 200,000 increase and fell short of even the most pessimistic forecast in a Reuters poll. The jobless rate ticked a tenth of a point lower to 7.6 percent largely due to people dropping out of the work force.

Some of the weakness appeared due to higher tax rates that took effect in January. While recent reports have pointed to relatively buoyant retail sales in January and February, Friday's data showed retailers actually cut staff in March by 24,100, making it the hardest-hit sector last month. Moreover, the government said hiring in the retail sector was weaker in January and February than initially thought.

It was unclear whether across-the-board federal budget cuts that began in March played a role in the weak pace of hiring, although nervousness over the cuts might have made businesses shy about taking on more staff.

Meanwhile, March's slowdown in job growth could result in the Fed becoming more confident about continuing a bond-buying stimulus program. Prior advances in the labor market recovery had fueled discussion at the central bank over whether to dial back the purchases, perhaps as soon as this summer.

The employment report did have some positive news for the economy. The Labor Department revised readings for January and February to show 61,000 more jobs added than previously estimated. The average workweek rose to its highest level in a year. The construction sector added 18,000 jobs, reinforcing the view that a recovery in the housing sector has become entrenched.

Unfortunately, federal spending cuts have only just begun and will be a more substantial drag on the economy between April and June, when many government workers begin taking days off work without pay. In March, government payrolls fell only 7,000, partly reversing a 14,000-job gain from February.

The Congressional Budget Office has estimated that tighter fiscal policy will subtract about 1.5 percentage points from economic growth this year.

Fed Chairman Ben Bernanke, who has said the labor market must show sustained improvement before monetary stimulus is eased, has voiced concern about the spending cuts.

The jobless rate fell to its lowest since December 2008, but the report showed that much of the drop was due to the labor force shrinking by 496,000 people. That pushed the labor force participation rate - the percentage of working-age Americans either with a job or looking for one - to 63.3 percent, its lowest since 1979.