Stocks slide on weak economic data

Private-sector hiring and weekly jobless claims disappoint investors. European markets finish lower as turmoil persists. Costco and Gap miss same-store sales forecasts.

By TheStreet Staff May 31, 2012 7:18AM

Updated at 12:06 p.m. ET

By Shanthi Bharatwaj

Stocks were off their lows but remained in the red Thursday after reports showed a disappointing pace of job creation and slower economic growth than initially thought.

Demand for haven assets continued to surge amid heightened eurozone uncertainty, with the yield on 10-year Treasurys still hitting record lows.

The Dow Jones Industrial Average ($INDU) was down by 51 points at 12,368. Earlier in the session, the index fell to as low as 12,316. The S&P 500 ($INX) was lower by 8 points at 1304. The Nasdaq ($COMPX) was dropping 25 points at 2,812.

Twenty-three out of the 30 Dow components were trading in the red, with Caterpillar (CAT), Exxon Mobil (XOM) and Bank of America (BAC) leading the index lower.

Shares in capital goods, energy and materials were the worst performers.

Heading into this final session of the month, May was set up for a particularly ugly finish. The S&P 500 is on pace for its worst monthly slump since September. The index has declined 6.1% this month through Wednesday.

The Dow, down 6% so far, has had only five positive trading sessions over the month, its worst performance since May 2010, when concerns about Greece first emerged. The Nasdaq has lost nearly 7%.

Worries about the fate of the euro and the impact of a global slowdown has led investors to abandon equities and seek safe havens such as U.S. treasury bonds.

"A lot of people really don't trust this market. Maybe they say the market is rigged or it's insider's game, so you just see a lot of people taking their money out of U.S. equities and putting them into bonds and looking for capital preservation instead of the risk-on trade," Joe Bell, senior equity analyst at Schaeffer's Investment Research, said.

"The stunning thing to me about . . . the way the market is behaving now is, when you look at 30-year Treasurys, they're behaving as if a Lehman-like event has already happened," said Michael Gayed, a chief investment strategist at Pension Partners LLC.

Investors betting on U.S. economy withstanding global pressures were in for some disappointment Thursday as a raft of economic data pointed to slowing growth.

ADP's employment report showed companies created 133,000 jobs in May, underwhelming expectations. Economists had expected the private sector to have added 148,000 jobs in May, according to Thomson Reuters. In April, companies created 119,000 jobs

Earlier Thursday, global outplacement firm Challenger, Gray and Christmas said employers announced plans to lay off 61,887 workers in May, an eight-month high and up 67% from a year earlier.

The Labor Department said initial jobless claims for the week ending May 26 jumped by 10,000 to 383,000, higher than the 370,000 economists were expecting.

The reports come ahead of Friday's all-important jobs report. The Labor Department is expected to say that the economy created 150,000 jobs in May, up from 115,000 in April, according to economists surveyed by Thomson Reuters.

Another month of bad news on jobs could further dampen investor sentiment and revive expectations that the Federal Reserve will do more to boost the economy.

The Bureau of Economic Analysis at the Department of Commerce said the economy expanded at a rate of 1.9% during the first quarter, down from the advance estimate of 2.2%. That was in line with expectations.

The Institute for Supply Management said business activity in the Chicago region significantly slowed, with the purchasing managers' index coming in at 52.7, down from 56.2 in April.

The consensus expected Chicago PMI to come in at 57 for May. A reading over 50 indicates expansion.

July oil futures were lower by $1.26 at $86.56 a barrel, and August gold futures were lower by $1.6 at $1,564.10 an ounce in volatile trading.

The benchmark 10-year Treasury was rising by 22/32, lowering the yield to another record low of 1.549%, and the greenback was up by 0.1%, according to the dollar index.

The euro was trading flat against the dollar at $1.235 near its two-year low.

European markets finished in the negative Thursday, reversing an early bounce, as markets were unable to shake off concerns about the region's debt crisis.

The FTSE in U.K. finished flat, while the DAX in Germany lost 0.6%.

Stocks in the region had shown signs of stabilizing earlier in the session amid a clutch of better-than-expected economic data. Inflation in the 17-nation area fell to 2.4% from 2.6%, the slowest pace since February 2011, while the German unemployment rate fell to 6.7% in April.

Asian markets sold off, tracking the risk-off trade in European and U.S. markets on Wednesday. Hong Kong's Hang Seng dropped 0.3%, while Japan’s Nikkei declined 1%.

In corporate news, shares of Talbots (TLB) jumped more than 90% after it agreed to be taken private by Sycamore Partners at $2.75 per share.

The nation's retailers, reported mostly better-than-expected same-store sales numbers, though some big names disappointed.

Gap (GPS) said comparable-store sales rose 2% in May, less than the 3.1% jump analysts were predicting. Shares were down 1.8%.

Target (TGT) reported a 4.4% growth in same-store sales in May, beating analyst estimates. Shares were rising 0.5%.

Costco (COST) said same-store sales rose 4%, short of the 4.3% analysts were expecting. Shares were edging higher by 0.7%.

TiVo (TIVO) reported weak first-quarter results and second-quarter guidance. The digital video recording company posted a loss of 17 cents a share on revenue of $67.8 million. Analysts were expecting a loss of 15 cents a share on $54.89 million in service and technology revenue.

For its fiscal second quarter, TiVo said it expects service and technology revenue to be between $53 million and $55 million and projects a net loss of $28 million to $30 million. Analysts expect revenue of $56.5 million and a loss of $27 million.

Shares were declining 6.1%.

Ciena (CIEN) shares were surging 7.5% after the network equipment maker reported an adjusted profit of 4 cents per share, beating expectations of a loss of 3 cents per share.

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