Jobs Shock Leads Stocks Lower, While Energy Sells Off and Crude Slumps

Stocks fell on Friday, Oct. 6, as investors processed a far worse monthly jobs report than anticipated and a steep decline in crude oil prices.

The Dow Jones Industrial Average was down 0.16%, the S&P 500 fell 0.27%, and the Nasdaq dipped 0.06%.

The U.S. nonfarm payrolls report showed its first contraction in seven years, a result of Hurricane Harvey and Irma that hit Texas and Florida, respectively. The U.S. economy lost 33,000 jobs in September, shocking economists looking for 85,000 jobs to have been added.

Almost 3% of employed workers nationwide said they had not been able to work or had worked fewer hours in September because of bad weather, a record high for the measure. Leisure and hospitality jobs saw a sharp decline.

Previous months’ headline jobs numbers were revised. The August job increase was bumped up to 169,000 from 156,000. The July job increase was cut to 138,000 from 189,000.

In more positive news, the unemployment rate declined to 4.2% from 4.4%, its lowest level since December 2000. Wages increased by 0.5% to an average $26.55 an hour. Hourly wages rose by 2.9% year over year.

“Obviously, the jobs number, which was heavily impacted by last month’s hurricanes, is far below expectations, but early indications are the market may focus on other positive core components of the report such as the drop in the unemployment rate and the increase in wages,” said Tony Bedikian, head of global markets at Citizens Bank.

All benchmark indexes closed at records for another day on Thursday, Oct. 5. The S&P 500 has risen for eight sessions, its longest streak since 2013. Its sixth straight record close on Thursday afternoon also marks the longest record-making streak since 1997.

Crude oil prices held lower on Friday afternoon after a weekly reading on drilling activity in the U.S. showed a decline in the number of active rigs. The number of active oil rigs fell by two to 748, Baker Hughes reported. The total number of active drilling rigs declined by four to 936.

A reading on inventories earlier in the week showed a steeper decline in stockpiles in the past week as refineries continue to work through the buildup caused by Hurricane Harvey.

The commodity was also under pressure as Tropical Storm Nate barreled toward the Gulf of Mexico, potentially disrupting energy production in the region. Like Harvey, shutdowns to refineries in the area could cause a backlog in crude inventories.

West Texas Intermediate crude was down 3% to $49.23 a barrel on Friday after returning to a level above $50 a day earlier.

Energy stocks were the worst performers on Friday. Exxon Mobil Corp. (XOM) , Royal Dutch Shell PLC (RDS.A) , Chevron Corp. (CVX) , PetroChina Co. Ltd. (PTR) , Total SA (TOT)  and BP PLC (BP) were all lower, while the Energy Select Sector SPDR ETF (XLE) decreased 1.2%.

Pinnacle Entertainment Inc. (PNK)  rose and Penn National Gaming Inc. (PENN)  fell on reports of merger talks. The two gaming companies have reportedly had “on-again, off-again” talks to seal a deal, but have been unable to do so, according to The Wall Street Journal.

Costco Wholesale Corp. ( COST)  was down 6% on Friday even after the company’s full-year earnings exceeded expectations. For the year ended Sept. 3, Costco earned $5.89 a share, ahead of analysts’ expectations of $5.77. Sales of $129 billion, up almost 9% from a year earlier, were also ahead of consensus estimates of $128.5 billion. Same-store sales rose 3.8% in fiscal 2017. E-commerce sales, a closely watched variable after Inc.’s ( AMZN) acquisition of Whole Foods and Walmart Stores Inc.’s ( WMT) greater push into online retail, jumped 13%.

Chief Financial Officer Richard Galanti, on a call with analysts following the release of the earnings report on Thursday, said the company is expanding e-commerce capabilities to other countries, driving awareness of its e-commerce site among members and experimenting with new online offerings, including free delivery in two days or less of nonperishable goods through its new Costco Delivery service. At 376 Costco locations in the U.S., with more to come by the end of next year, Costco offers same-day delivery with delivery startup Instacart.

Apple Inc. (AAPL) was slightly lower on Friday morning on more reports of problems with the iPhone 8 Plus’ batteries. A device in China has reportedly split open, possibly a problem with the battery. That mirrored reports of similar issues earlier in the week. A spokesperson told MacRumors that the company was looking into the issue.

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