Stocks surrendered some of their recent gains Friday as a jump in the U.S. unemployment rate to a six-year high tempered hopes for a swift economic rebound next year and spurred investors to lock in profits.
The government reported unemployment rose to a six-year high of 5.7 percent in November from 5.4 percent in October and a whopping 331,000 non-farm jobs were lost — far worse than the drop of 189,000 economists had expected.
The blue-chip Dow Jones industrial average fell 49.68 points, or 0.49 percent, to 10,049.46, while the technology-packed Nasdaq Composite Index dropped 33.29 points, or 1.62 percent, to end at 2,020.98. The broader Standard & Poor's 500 Index lost 8.84 points, or 0.76 percent, at 1,158.26.
"It just reminds everyone that we are still in a recession and we haven't actually turned the corner yet," said Jeffrey Kleintop, chief investment advisor at PNC Advisors. "I think we're still headed for a recovery, and I think the market understands that, but it's a little less encouraging."
Despite Friday's drop, the Nasdaq has rallied 4.70 percent this week and is up a hefty 42 percent since it slammed to three-year lows on Sept. 21. The S&P 500 rose 1.65 percent this week and has climbed almost 20 percent since Sept. 21. The Dow has gained 2.01 percent this week and is up 22 percent since late September.
"The market is taking a rest after having a spectacular run over the last 11 weeks," said Charlie Crane, strategist at Victory SBSF Capital Management, which oversees $4 billion. "One day's decline is hardly something to worry about. I suspect there will be some who will push the recovery out a month. But the wiser investor focuses on longer trends."
The total number of job losses in the past two months — almost 800,000 — was the highest in more than 20 years, pointing to more interest-rate cuts to combat recession, analysts said. The bleak numbers raise the likelihood of an eleventh rate reduction by the Federal Reserve at the year's final policy-setting meeting on Tuesday.
Bond dealers are unanimous in expecting the Fed next week to cut short-term interest rates by a quarter percentage point to 1.75 percent, according to a Reuters poll.
Meanwhile, upbeat forecasts from technology giants like chip leader Intel Corp. and rival Advanced Micro Devices Inc. suggested better times ahead, but investors — fearing a recovery may be slower than expected — opted to pocket profits after this week's rally.
Chip stocks like Texas Instruments Inc. fell after a powerful run-up. Halliburton Co., the oilfield services giant once headed by Vice President Dick Cheney, sank on mounting asbestos problems. Most U.S. Treasuries plunged for a third straight session as dealers booked profits on a year-long rally in government debt before year end.
"The market is taking a rest after having a spectacular run over the last 11 weeks,'' said Charlie Crane, strategist at Victory SBSF Capital Management, which oversees $4 billion. ''One day's decline is hardly something to worry about. I suspect there will be some who will push the recovery out a month. But the wiser investor focuses on longer trends.''
The market has surged as investors set their sights on economic growth next year. The optimism has triggered fears that stocks now may be too lofty, but all three indexes are still in the red for the year. The Nasdaq is off more than 18 percent, the S&P 500 lost more than 12 percent and the Dow is down 6.84 percent for the year.
Halliburton, the most active on the New York Stock Exchange, tumbled 42 percent, or $8.85 to $12 after a jury in Baltimore awarded $30 million in damages against its Dresser Industries subsidiary in a case involving asbestos claims. The verdict brings recent asbestos liability awards against the company to more than $150 million.
AOL Time Warner Inc. fell $1.77 to $32.98. Wall Street house Merrill Lynch cut its revenue and cash flow estimates for the media giant, citing in part Chief Executive Gerald Levin's retirement announced earlier this week.
Upbeat news for the high-tech sector came after computer chip giant Intel and rival AMD both boosted their fourth-quarter sales forecasts, boding well for holiday sales of personal computers. But the bullish forecasts failed to sustain the technology sector's heady run-up since Sept. 21.
Intel erased an early gain and fell 92 cents to $33.24. The Philadelphia Stock Exchange's semiconductor index surrendered 2.17 percent after surging about 50 percent since Sept. 21. AMD climbed $1.60 to $17.85.
Sun Microsystems Incfell 80 cents to $13.35. The network computer maker said business showed signs of stabilizing and was meeting expectations for the current quarter, but it held back from making hard forecasts due to the unsteady economy.
Coldwater Creek Inc. tumbled $9.19, or 34 percent, $17.71. The women's apparel retailer said quarterly earnings would be sharply below year-ago levels as consumers limit purchases of clothing in the recession.
Wall Street shrugged off a rise in U.S. consumer sentiment in early December. The University of Michigan's preliminary consumer sentiment index rose for a third straight month to 85.8 from 83.9 in November.
Recent economic data showing modest growth in the U.S. services sector has helped fuel expectations for a quick economic turnaround. Positive news from marquee names in the high-tech sector, including Cisco Systems Inc., also boosted sentiment earlier in the week.
The number of declining stocks edged out advances on both the New York Stock Exchange and Nasdaq. More than 1.24 billion shares changed hands on the Big Board, and more than 1.90 billion on Nasdaq.
The Russell 2000 index lost 1.02 to 481.21.
Overseas, Japan's Nikkei stock average slipped 0.6 percent. In Europe, Germany's DAX index dropped 1.4 percent, Britain's FT-SE 100 slid nearly 2.0 percent, and France's CAC-40 lost 0.8 percent.
Reuters and the Associated Press contributed to this report.