Strong job creation numbers on Friday could not overcome the impact on US markets of a plunge in overinflated commodities prices this week.
The period began and ended on strong notes — stocks jumped upon opening on Monday on the news that US forces had found and killed al-Qaeda chief Osama bin Laden in Pakistan.
And on Friday, the US Department of Labor reported that businesses added an unexpectedly high 268,000 jobs last month, encouraging hopes the economic recovery was on track even as strapped US federal and local governments cut spending and payrolls.
However, the impact on trading was ephemeral — both Monday’s and Friday’s gains quickly gave way to selling and the rest of the week traded down as the air blew out from sky-high oil, gold, silver and farm commodity prices.
Early on Friday, the Dow jumped 175 points on the jobs news, flirting with the previous week’s close of 12,810.54, its best level since May 20, 2008.
However, finally it dropped back and the index finished the week off 1.34 percent at 12,638.74.
The broader S&P 500 gave up 1.72 percent for the week to 1,340.20, while the tech-centric NASDAQ Composite ceded 1.6 percent to 2,827.56.
The main impetus, said analysts, was the sharp upward turnaround in the US dollar, which sent gold down by 10 percent and oil 15 percent after they had hit peaks at the outset of the week.
“We were completely captivated by what was going on in the commodity complex,” Gina Martin of Wells Fargo Securities said. “Over a long period of time oil and equities are correlated and that appeared to be the case this week.”
However, “de-risking” moves took hold, with large hedge funds and other major portfolio investors reported dumping commodities positions.
“Over the last few months investors have started to take a little bit of risk off the table. And obviously commodities are a risky asset class,” Martin said.
“It’s been a reactionary market, as the selloff in commodities has led to reactionary selling in equities overall,” Michael James of Wedbush Morgan Securities said.
“People’s nerves today got settled a little bit with much better job report,” he added.
Energy shares were major losers during the week because of the fall in oil prices. ExxonMobil and Chevron shares both lost 6 percent, while Conoco-Phillips was down 7.5 percent.
Market shakiness should continue on the back of dollar and commodity swings, Wedbush’s James said.
“There’s going to be continued volatility. The sharp move down in commodities has certainly caused a lot of nervousness and increased anxiety usually leads to increase volatility,” he said.
However, that is not all bad news, IHS Global Insight economists Patrick Newport and Nigel Gault said.
“Stock market volatility is not a good thing for consumer mood and household net worth — especially with falling real-estate prices,” they said.
“However, falling world oil prices can have a positive impact on consumer sentiment as long as it translates into cheaper prices at the pump,” they added.