Oil Prices and Joblessness Punish Shares What the Solution?

Wall Street suffered its worst losses in more than two months on Friday after crude oil prices spiked over $138, an increase of nearly $11, and the unemployment rate rose more than expected.

All 30 of the stocks that make up the Dow Jones industrial average took a hit as the index dropped nearly 400 points on fears that high energy prices will extend and deepen an economic slowdown.

“The market is meeting its worst fears right now,” said Quincy Krosby, chief investment strategist at the Hartford, a financial services firm.

The Dow fell 3.13 percent, or 394.64 points, to close at 12,209.81. The broader Standard & Poor’s 500-stock index lost 43.37 points, or 3.09 percent, to 1,360.68, its lowest point in four months. The technology-laden Nasdaq composite index declined 75.38 points, or 2.96 percent, to 2,474.56.

Shares opened lower after the government reported that the unemployment rate in May increased the most in one month in 22 years. The market decline accelerated as crude oil rose steadily, closing $10.75 higher in its biggest one-day climb ever.

“Oil prices have reached the tipping point,” said Richard Sparks, an analyst at Schaeffer’s Investment Research. “Prices have rallied for a good two months, but now it’s really weighing on the market.”

Friday’s session wiped out the gains the markets had Thursday, and left all three major indexes down for the week. The Dow fell 3.39 percent for the week, the S.& P. 500 was off 2.83 percent and the Nasdaq had a loss of 1.91 percent.

Wall Street has run into choppy waters over the last two weeks after a period of relative calm. Friday’s decline was a return to the triple-digit collapses of February and March, when the market was rocked by the Bear Stearns bailout and significant interest rate cuts from the Federal Reserve.

Posted by Staff

The last time the Dow fell this much was at the beginning of the subprime mortgage crisis in February 2007.