Crude prices soared to more than $104 per barrel, the highest level since September 2008, following continued tension in Libya and dragged the markets lower on Friday. Not only did surging crude prices erase most of the gains for the week, it also negated the positive sentiment coming from the decline in unemployment rate.
The fear gauge CBOE Volatility Index (VIX) jumped 2.7% to 19.11. The Dow Jones Industrial Average (DJIA) dropped 0.7% to close at 12,169.88. The Standard & Poor 500 (S&P 500) was down 0.7% and finished the day at 1,321.15. The Nasdaq Composite Index ended at 2,784.67 and shed 0.5%. On the New York Stock Exchange, NYSE Amex and Nasdaq, consolidated volumes were at 7.73 billion shares and below last year's daily average of 8.47 billion. Weekly gains were subdued due to the fall on Friday and the Dow posted a 0.3% gain for the week while both the S&P 500 and Nasdaq gained 0.1%.
On Friday, the Labor Department reported that the unemployment rate declined to 8.9% against economists’ expectations of a jump to 9.1%. This is the lowest level since April 2009 after the figure came in at 9.0% in January. The slightly better than expected jobs data came in after expectations built up following a positive survey from Automatic Data Processing released on Wednesday. According to the Labor Department, the economy added 192,000 jobs in February beating consensus expectations of an increase of 185,000. Government payrolls went down by 30,000 and the private sector added a total of 222,000 jobs. This result was in contrast to consensus expectations of a 13,000 decline in government jobs and a gain of 198,000 private sector jobs.
However, the positive data provided little comfort to investors as surging crude prices overshadowed the Labor Department’s report. Investors have had a cheery week after the optimistic ADP jobs survey and a significant decline in unemployment benefit claims. However, investors turned bearish as unrest intensified in Libya and crude prices sky-rocketed to more than $104 per barrel. A rise in crude prices would weigh heavy on consumers and the global economy has a lot to worry about. Federal Reserve Chairman, Ben Bernanke had earlier warned: "Sustained rises in the prices of oil and other commodities would represent a threat both to economic growth and to overall price stability.
In latest developments, loyalists of Libyan leader Muammar Gaddafi, who currently faces the heat of protests, continued their strong retaliation against protestors. Soldiers and tanks filled the streets and troops fired bullets and teargas at anti-government demonstrators, showing little possibility of tensions easing. International and Libyan rights groups alleged that there had been an increasing number of forced disappearances. Heba Morayef, researcher of Human Rights Watch said: “We are getting several hundred reports of disappearances from this week alone. Traders now fear that the civil war can only get more dangerous not only for thousands of Libyans but for the entire global economy as the fate of crude prices is likely sealed to soar higher.
Moving on to the performance of stocks, bank shares took a beating as Bank of America (NYSE:BAC) downgraded Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS) to "neutral" from "buy" expecting lower client activity and geo-political risks to lower first quarter earnings of large U.S. banks. Goldman Sachs dropped 2.1%, Citigroup shed 3% and Bank of America also declined 1.1%. The homebuilding sector was on the declining side and shares of Weyerhaeuser Co. (NYSE:WY), KB Home (NYSE:KBH) and Ryland Group Inc. (NYSE:RYL) declined 2.2%, 2.6% and 1.9%, respectively.
Among the winners, Agilent Technologies Inc. (NYSE:A) surged 9.2%, JDS Uniphase Corporation (NASDAQ:JDSU) was up 8.9% and DaVita, Inc. (NYSE:DVA) gained 3.7%, Netflix, Inc. (NASDAQ:NFLX) advanced 3.6% and Expedia Inc. (NASDAQ:EXPE) moved up 2.9%. These stocks were also the gainers for the S&P 500 index. The decliners for the day include General Electric Co. (NYSE:GE), Hewlett-Packard Company (NYSE:HPQ), American Express Company (NYSE:AXP) and Marvell Technology Group Ltd. (NASDAQ:MRVL), which shed 1.8%, 1.4%, 1.3% and 11.5%, respectively.