Stocks dropped on Friday after weak jobs growth in June dented hopes the economy was emerging from a soft patch, but the start of earnings season next week kept investors engaged.
U.S. employers hired a mere 18,000 workers, the Labor Department said, the fewest number in nine months and far below economists' expectations for a 90,000 rise.
The selloff was broad as the report dashed expectations that the labor market would show more signs of strength after some encouraging jobs numbers during the week.
Clearly one bad month of jobs can be dismissed, two disappointments in a row starts to be a concern, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
Earnings season can't come soon enough. That will give us a really good handle on our overall trajectory.
The Dow Jones industrial average <.DJI> dropped 135.17 points, or 1.06 percent, to 12,584.32. The Standard & Poor's 500 Index <.SPX> fell 17.91 points, or 1.32 percent, to 1,335.31. The Nasdaq Composite Index <.IXIC> lost 38.12 points, or 1.33 percent, to 2,834.54.
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The earnings season, which begins next week, is widely expected to be strong despite the economic slowdown in the second quarter.
Kevin Kruszenski, head of listed trading, at KeyBanc Capital Markets in Cleveland, said his desk, which deals with institutional clients, was seeing buying interest. He noted the pullback was orderly after a 6.7 percent rally in the S&P 500.
We are strictly institutional here on this desk and we are buying more than we are selling, so I'm not seeing the selling coming from institutions in the sectors we focus on, he said.
The CBOE volatility index <.VIX>, or VIX, widely seen as a measure of anxiety on Wall Street, rose 5 percent but was still at a relatively depressed level of 16.85.
Banking stocks were among the biggest losers. The S&P's financial index <.GSPF> fell 1.8 percent, led lower by Bank of America
The unemployment rate rose unexpectedly to 9.2 percent, the highest since December, from 9.1 percent in May.
For graph of the S&P 500 and the payrolls numbers, http://link.reuters.com/dev52s
Many economists had raised their non-farm payrolls forecasts on Thursday after a stronger-than-expected reading on private hiring from payrolls processor ADP, which prompted stocks to rally on Thursday.
Semiconductor stocks showed weakness and the Philadelphia semiconductor index <.SOX> , or SOX, ran into resistance around it 50-day moving average on Thursday. The index is often seen as a leading indicator for the wider market. The SOX fell 2.3 percent.
The benchmark S&P 500 had risen 6.7 percent over the past eight sessions before Friday's decline on economic data which suggested the economy was bouncing back.
U.S. wholesale inventories rose 1.8 percent in May, the Commerce Department said. The larger-than-expected increase created a potential drag on growth in the second half of the year as the job market slows.
(Reporting by Edward Krudy; Editing by Kenneth Barry)