Watch CBSN Live

War worries, Fed mystery leave investors deflated

(MoneyWatch) It was a see-saw day on Wall Street Friday as a lackluster jobs report, uncertainty over Federal Reserve stimulus prospects and war worries regarding Syria conspired to leave stocks relatively flat.

The Dow industrials lost 14 points to close at 14,922 Friday while the broader based S&P 500 gained less than a point to close at 1,655. The Nasdaq Composite index gained 1 point to end the week at 3,660.

The monthly employment report, a closely watched barometer of economic health released by the federal government, came in with mildly disappointing numbers for job growth and unemployment. Dconomists had expected businesses to add 180,000 new jobs in August; instead, the number came in at 169,000. While the unemployment rate ticked down to 7.3 percent, the "improvement" was due to a greater number of discouraged people leaving the job rolls.

In all, it wasn't horrible news, but it did suggest an economy that continues to struggle, despite the central bank's low interest rate policy.

Financial markets initially reacted positively to the tepid economic news -- traders reasoned that the glum employment picture would prompt the Fed to delay cutting back on its bond purchases that serve to put cheap money into the hands of financial institutions. That "good for Wall Street, bad for Main Street" reasoning quickly sent the Dow up 52 points, along with the price of oil and gold, in expectation that more easy money is ultimately inflationary and therefore good for precious metals and commodities.

Those considerations also contributed to volatility in the bond market, sending interest rates sharply lower from the day before. The yield on the benchmark 10-year Treasury note fell to 2.94 percent from 3 percent the previous close.

Not all analysts are convinced the Fed will wait to taper its $85-billion-a-month bond purchase program, which the central bank launched in 2008 to spur economic growth. Many didn't see today's numbers as bad enough to warrant waiting until after this month to begin cutting back on its stimulus program.

"We still expect the Fed to start the tapering process at this month's meeting, although this report will keep the debate going," said Jim O'Sullivan, chief U.S. economist at analysis firm High Frequency Economics.

U.S. workers struggle with stagnant wages

The market was further roiled by Russian President Vladimir Putin, who told a news conference at the G-20 conference in St. Petersburg that Russia and Iran would firmly stand by their ally in Syria in case of an American attack. The Dow turned tail, erasing its gains and shed 148 points. But the losses were relatively short-lived, and buyers sent the market higher for most of the day until it gave up its gains and ended the day nearly even.

While Wall Street's gaze remains fixed on when the Fed will begin to tighten its spigot of easy money, the human costs of the economy were easily seen in the jobs report.

"The size of the labor force shrank by 312,000 in August, following a smaller decline in July," said Doug Handler, chief U.S. economist at IHS Global Insight. "Virtually all of this decline can be traced to men; the number of women in the labor force increased in August. This suggests that much of the decline came from occupations that are male-dominated, such as construction, and that many former workers are becoming discouraged about their job prospects and dropping out of the labor force as a result."

Handler believes the Fed will wait until December to start cutting back on stimulus.