Stocks Take Another Step Back

Updated from 4:18 p.m. EST

Stocks in New York had an erratic session before ending lower Friday, as optimism surrounding the probability of more rate cuts had to contend with another sign the U.S. economy is in danger of sliding into, or already in, a recession.

The Dow Jones Industrial Average dropped more than 100 earlier, rebounded to go positive, then proceeded to slide by more than 200 points. At the close, the index had fallen 146.70 points, or 1.2%, to 11,893.69. The S&P 500 was down 10.97 points, or 0.8%, at 1293.37, and the Nasdaq was off 8.01 points, or 0.4%, at 2212.49.

Breadth was poor. Roughly 4.48 billion shares changed hands on the New York Stock Exchange, and some 2.38 billion traded on the Nasdaq. Decliners outpaced advancers 3 to 2.

All three major averages were down substantially for the week thanks especially to the last couple of brutal sessions. Since Monday, the Dow slid 3%, the S&P lost 2.8%, and the Nasdaq gave back 2.6%.

One of the key stories of the day was the government's employment report, which came in far below what was expected and added to the building evidence that the U.S. economy is in the midst of a significant slowdown.

The Labor Department said 63,000 jobs were lost in February, making it the worst month in five years. A Bloomberg survey had the consensus estimate for an addition of 23,000 workers. At the same time, the initial report that 17,000 jobs were given up in January was revised down by 5,000 to show a loss of 22,000. On top of that, December's gain of 82,000 was cut in half. The unemployment rate last month did tick down to 4.8%.

"These poor jobs data are the strongest evidence yet that the economic expansion has ended," Peter Morici, a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission, said in an emailed statement. "The economy has slipped into a recession of uncertain depth and duration."

Hank Smith, chief investment officer with Haverford Investments, believes that even if a recession has already begun, "it should be brief and shallow," only nominally worse than a period of slowing or stagnated growth.

Still, the employment numbers ultimately seemed to overshadow attendant hopes of more rate cuts by the Federal Reserve, as well as news that the central bank is taking new steps to improve liquidity in the market. First, the central bank will increase the size of its term auction facility to $100 billion, from $60 billion, over the course of the next two auctions.

Second, it will undertake a series of repurchase transactions that are expected to total $100 billion. The transactions will be conducted as 28-day term repurchase agreements in which primary dealers can put up as collateral for loans any of the securities that are eligible in conventional open market operations.

The Fed plans to continue holding the auctions for at least the next six months unless they become unnecessary. Also, it said it's "in close consultation" with foreign central banks concerning the credit situation. However, with the moves, the chance of an intermeeting rate cut that some traders were hoping for might have been taken off the table.

Phillip Roth, chief technical market strategist with Miller Tabek, said there was "nothing definitive" in the central bank's actions, adding, "this only says the Fed will do what it can to add liquidity into the system."

Smith is more optimistic. Regarding whether monetary stimulus will help turn the economy around, he said, "I think that question is always asked at the darkest period. And our simple response is, 'of course it will work, because it's worked in the past.'"

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