Stocks Start September Weakly, Snap Winning Streak

NEW YORK (TheStreet) -- Stocks slumped Thursday as troubled financial stocks, lackluster economic data, and worries about the jobs report for August weighed on investor sentiment.

The Dow Jones Industrial Average fell 120 points, or 1%, to finish at 11,494. The S&P 500 lost 14 points, or 1%, to close at 1204, while Nasdaq slipped 33 points, or 1.3%, to settle at 2546.

The declines snapped a four-day winning streak for the major U.S. equity indices and kicked off September, historically the worst month for stocks, in poor fashion with the markets coming off a volatile August that saw all three benchmark indices decline at least 4%.

The blue-chip index spiked as high as 11,717 in morning trades but quickly pared those gains. The action was choppy with volume of 4.20 billion shares on the New York Stock Exchange and 1.7 billion shares on the Nasdaq.

Thursday's economic data on jobless claims, manufacturing activity and construction spending initially garnered a warm response from investors. But the reality of the lackluster economy those numbers conveyed eventually set in.

Manufacturing activity held steady in August, according to the Institute for Supply Management's index, which came in at a reading of 50.6 compared with a reading of 50.9 in July. Economists had expected the index to fall to a reading of 48.5.

"The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customers' confidence and willingness to place orders, at least in the short term," said Bradley J. Holcomb, chair of the ISM.

Meanwhile, the Census Bureau said construction spending ticked up 0.1% in July to $789.5 billion compared with $789 billion recorded in the same month a year ago. However, spending was down 1.3% from June's estimate of $799.8 billion.

Also, initial jobless claims fell 12,000 to 409,000 for the week ended Aug. 27 from a revised 421,000 in the prior week. Economists had expected claims to come in at 410,000.

Investors are keying in on last month's jobs data, which along with manufacturing is also expected to play a key role in the Federal Reserve's determination of whether further economic stimulus is needed. A preliminary reading on the jobs market from Automatic Data Processing on Wednesday said that companies added 91,000 jobs in August, shy of expectations for a gain of 100,000.

While the Federal Reserve's decision to extend its next meeting in September to two days has triggered hopes that Fed chairman Ben Bernanke would now have more time to build a consensus around monetary easing, pessimists continue to point to the deep rift among members at the Aug. 9 meeting of the Federal Open Market Committee.

The government's highly anticipated monthly jobs report is due out on Friday. Economists are expecting some 100,000 jobs added in August after gains of 117,000 in July. Briefing.com is expecting the unemployment rate to tick up to 9.2% from 9.1% in July.

The Dow was weighed down by financial stocks Bank of America (BAC) and JPMorgan Chase (JPM), and basic materials and industrial stocks Caterpillar (CAT) and Alcoa (AA). Cisco Systems (CSCO) and The Coca-Cola Co. (KO) were the top gainers. \

The Treasury announced that it's still withholding millions of dollars in incentive payments to Bank of America and JPMorgan in connection to the federal loan modification program, saying that both firms still need to make substantial improvements in their performances there.

In other financial news, three major mortgage loan servicers have entered into a settlement with the New York State Department of Financial Services, agreeing to end "robo-signing" of mortgage foreclosure documents and make other servicing improvements, according to a Wall Street Journal report. The agreement between Goldman Sachs (GS), its subsidiary Litton Mortgage Services and Ocwen Financial (OCN) is expected to be announced Thursday, according to the Journal, which cited unnamed sources.

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