WALL STREET TO JOBS: GET LOST

By John Greenwald

ACTING LIKE A SPOILED RICH KID, WALL Street couldn't stand the news that another part of the economy--the one in which people work for a living--is having a better time of it. How else explain the 171-point drop in the Dow Jones industrial average that, for investors, evoked memories of the Crash of 1987? The same bulls who had gleefully stampeded in the midst of corporate layoffs let out a bellow of pain last Friday, when the Labor Department reported that the U.S. had created 705,000 jobs in February, more than twice what had been expected. The market plunged from the opening bell, closing at 5470.45, the third largest single-day drop in its history (though in percentage terms, the decline, 3%, was nowhere near the steepest on record).

Why would such good news turn Wall Street bearish? For one thing, the Street doesn't like surprises. This one broke the back of the sagging bond market, which had expected interest rates to keep falling. But the robust economic report hinted that rates might rise. The stock market headed for the exits, fearing that higher rates will lure money out of equities.

Experts saw the Friday free fall as part of a long-overdue correction. But the most consoling, if perverse, thought for market watchers like Donald Straszheim, chief economist for Merrill Lynch, is that the employment surge may have been a statistical illusion. Says he: "We have never had an economy that created jobs like that. Those numbers are implausible." In other words, the good news may not have been so bad after all.

--By John Greenwald. Reported by Sharon E. Epperson/New York

With reporting by SHARON E. EPPERSON/NEW YORK