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Economix Blog: For the Markets, a Steady Outlook

June 7, 2013 by Leave a Comment

10:04 a.m. | Updated with reaction in the bond market.

The latest jobs report appears to maintain the status quo, and for Wall Street, that’s not a bad thing.

Stocks rose on Friday morning after the Bureau of Labor Statistics announced that the United States economy had created 175,000 jobs in May. Soon after the opening bell, the Standard Poor’s 500-stock index rose 0.4 percent.

The number of jobs created in May was slightly higher than many on Wall Street had expected, but the much more important consideration for most strategists was what the number will mean for the policy makers at the Federal Reserve.

“These days, the specifics of the report are far less important to our clients than is the effect it may or may not have on Fed activity,” Dan Greenhaus, the chief strategist at the brokerage BTIG, wrote to clients immediately after the data was released.

The consensus so far is that the number isn’t so low that it points to a shrinking economy, but it also isn’t so high that it will force the Fed to reconsider its monetary stimulus programs. Wall Street has been worried for the last few weeks that the Fed might be looking to pull back on its stimulus sooner than had been previously expected if the economy showed signs of faster-than-expected growth.

“Today’s report, is exactly as we predicted; it does nothing to change the broader view that the Fed is set to steadily reduce its pace of asset purchases at the September meeting and that all else equal, good news should be taken as good news,” Mr. Greenhaus wrote.

Because the Fed has been injecting money into the economy by buying government bond markets, those bond prices are a closely watched indication of sentiment about the Fed. In early trading on Friday morning, investors were buying United States government bonds in a bet that the Fed will be doing so as well. That helped push down the interest rate on the benchmark 10-year bond to 2.11 percent, from 2.08 percent on Thursday night.

Article source: http://economix.blogs.nytimes.com/2013/06/07/for-the-markets-a-steady-outlook/?partner=rss&emc=rss

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Wall Street Slips Lower

June 5, 2013 by Leave a Comment

Wall Street fell sharply Wednesday, with industrial and financial sectors leading the market down more than 1 percent.

The three major benchmarks — the Standard Poor’s 500-stock index, the Dow Jones industrial average and the Nasdaq composite — were all down about 1.1 percent in afternoon trading. The Dow was just above the 15,000-point level.

A private sector jobs report released earlier showed companies picked up the pace of hiring in May, though job growth remained sluggish. The report came ahead of the crucial nonfarm payrolls report on Friday.

“The market is overlooking this disappointing number, and putting greater emphasis on the nonfarm payrolls for better clues on what the Fed is going to do,” said Andrew Wilkinson, chief economic strategist at Miller Tabak Company.

A separate report showed a gauge of United States labor-related costs fell in the first quarter by the largest amount in four years, although the reading appeared distorted by a shift in employee compensation during the prior period to avoid a tax hike.

Trading has been volatile over the last few weeks amid a slew of economic reports and comments from Fed officials that have hinted on when the Fed may start reducing its stimulus efforts, which have powered this year’s stock market rally.

The market is expected to continue to be volatile this week, with intraday swings of more than 1 percent in either direction during a single trading session.

The American International Group said on Tuesday that a proposed $8.5 billion settlement between Bank of America and investors of Countrywide Financial mortgage-backed securities was not big enough. A.I.G. shares gained 1.2 percent.

The Treasury Department said it would begin another round of sales of the General Motors stock it acquired during the government’s bailout of the auto sector. The stock was down 2.1 percent.

European shares fell on concerns that the United States might begin to taper economic stimulus measures, with the FTSE 100 index ending 2.1 percent lower.

Comments late on Tuesday from two senior Federal Reserve officials highlighted divisions over the future of the central bank’s stimulus program.

Richard Fisher, president of the Federal Reserve Bank of Dallas, and Esther George, president of the Federal Reserve Bank of Kansas City — both long-term critics of the bond-buying program — reiterated their concerns over the risks of waiting too long to cut it back.

“The markets are hanging on every word of the central bankers in Europe and the U.S.,” said Richard Griffiths, a Berkeley Futures associate director.

Japan’s Nikkei share average sagged to a two-month low on Wednesday, as Prime Minister Shinzo Abe pledged to bolster incomes and attract foreign businesses, but did not mention a proposal to encourage Japan’s public funds to seek higher returns by investing more in riskier assets like equities.

“Investor expectations were for more specific growth policies and the disappointment has only exacerbated a trend for a correction in Japan’s stock market,” said Lee Hardman, currency analyst for Bank of Tokyo-Mitsubishi UFJ.

Since the Nikkei index rose to a five-and-a-half-year high on May 23, up more than 50 percent this year, doubts about the effectiveness of Mr. Abe’s economic reforms and the Bank of Japan’s stimulus efforts have led to a steady erosion of the gains.

Article source: http://www.nytimes.com/2013/06/06/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Wall Street Starts Higher

June 4, 2013 by Leave a Comment

Stock were slightly higher on Tuesday but trading was expected to be volatile as several Federal Reserve officials due to speak may provide clues on how long the Fed intends to maintain stimulus efforts.

The Standard Poor’s 500-stock index gained 0.3 percent, and the Dow Jones industrial average rose 0.2 percent in early trading. The Nasdaq composite rose 0.3 percent.

Intraday swings have increased in the last week as concerns have risen that the Fed may reduce its bond-buying program sooner than expected.

Many investors are also likely to hold off big bets until the nonfarm payrolls report, to be released on Friday, provides an update on the employment situation. The market will also focus on the Fed’s Beige Book of economic conditions in the United States, to be released on Wednesday.

“There is not much to drive direction this morning as we come off a good, solid recovery performance yesterday, coming off that key 1,625 level on the S.P. 500,” said Andre Bakhos, director of market analytics at Lek Securities in New York.

“It’s a bit of a pause now but that could easily change on whatever theme that comes up.”

Three Fed officials — Sarah Bloom Raskin, a Federal Reserve governor; Esther L. George, president of the Federal Reserve Bank of Kansas City; and Richard W. Fisher, president of the Federal Reserve Bank of Dallas — are scheduled to deliver speeches Tuesday.

If the Dow ends higher Tuesday, it will be the 21st consecutive Tuesday for the Dow to gain, the longest winning streak for any day of the week since 1900.

European stocks were slightly higher in thin trading. By early afternoon the FTSE Eurofirst 300 index was 0.5 percent higher.

Overnight, Japan’s Nikkei climbed more than 2 percent, its biggest one-day rise in three weeks, as currency swings amplified moves ahead of Wednesday’s announcement from Prime Minister Shinzo Abe on the third leg of his $1.4 trillion “Abenomics” stimulus strategy.

The latest changes are likely to center on economic reforms but sources told Reuters the government could also include steps urging Japan’s public pension funds to increase their investment in equities and overseas.

Wall Street stocks rallied late on Monday, after disappointing factory data and comments from the president of the Federal Reserve Bank of Atlanta, Dennis Lockhart, who told Bloomberg Television that the central bank is committed to its record stimulus program.

In corporate news, Zynga, the online game company, announced its biggest round of layoffs and warned of weak bookings for the current quarter. Its shares rose 0.3 percent.

United States regulators proposed designating American International Group, Prudential Financial and GE Capital for heightened oversight in a long-anticipated move aimed at cracking down on risks to markets.

FedEx said on Monday it would permanently retire or will hasten the retirement of 86 aircraft and more than 300 engines as the package delivery company modernizes its fleet. Its shares were 1 percent higher.

Article source: http://www.nytimes.com/2013/06/05/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Wall Street Recovers After Worldwide Slump

May 23, 2013 by Leave a Comment

The worst drop was in Tokyo, where the Nikkei index fell 7.3 percent, the most since the 2011 tsunami there. In New York, the benchmark Standard Poor’s 500-stock index was down 0.9 percent in morning trading, but regained ground by early afternoon. Leading indexes closed down 2.1 percent in Germany and France.

The pessimism that overtook global investors on Thursday was a sharp reversal from months of steady advances in share prices around the world. Many investors had voiced concern that the rally was due for a break, but it had not been clear what would serve as a catalyst for a downturn.

The dip began on Wednesday afternoon, after the Federal Reserve chairman, Ben S. Bernanke, testified before Congress that the Fed could pull back on its monetary stimulus programs if the economy continued to show progress. Later on, an index of Chinese manufacturing showed that activity actually slowed in May for the first time in months.

The Chinese purchasing managers index, released by HSBC, fell to 49.6 points in May from 50.4 a month earlier. A reading below 50 signals a contraction.

China’s slowing momentum has been long in the making and has been, to some extent, deliberately engineered by the authorities in Beijing, who are trying to bring about a more balanced pace of growth. Still, disappointments over the performance of China’s economy – the second-largest in the world after that of the United States – remain liable to unsettle markets around the globe.

The response was particularly stark in Japan, where the government is in the early stages of an aggressive effort to prop up the long-suffering economy. High hopes that the bold economic policies of Prime Minister Shinzo Abe will succeed have prompted a huge rally in stocks since November. The Japanese market is still up nearly 40 percent since the start of the year.

Akira Amari, Japan’s economy minister, sought to calm nerves after the market closed on Thursday. “The Japanese economy is staging a sound recovery, and there is no need for panic,” he said, according to the Nikkei business daily. The plunge “is not exceedingly large, and stock prices in China, where the shock originated, have not fallen so much either,” he added.

“The stock market’s rise has so far been largely driven by expectations of an economic turnaround, but we’ve yet to see Mr. Abe’s policies really gain traction,” said Kiyoshi Yoshimoto, chief senior economist at the Japan Research Institute in Tokyo. “That means even small shocks, like lower-than-expected numbers out of China or some volatility in bond markets, can trigger a big but temporary response.”

Analysts have broadly welcomed Mr. Abe’s efforts to breathe life into the Japanese economy through a three-pronged approach of major fiscal spending, a promise to pursue structural reforms and a monetary policy that has effectively flooded the economy with cheap money through purchases of government bonds, commercial debt and other assets.

One result has been a weakening of the yen, whose 17 percent drop against the dollar since the start of this year has helped lift the earnings prospects of many Japanese exporters. Data released in the last few weeks have shown that the economy has begun to pick up speed.

Taking many market observers by surprise, however, bond yields have risen in recent days, fanning worries about a rising interest rate burden for the government. The yield on the 10-year Japanese government bond briefly spiked above 1 percent on Thursday before dropping back to 0.9 percent. The move spooked investors, helping produce the fall in the stock markets, said Stephen Davies, chief executive of Javelin Wealth Management in Singapore.

Japan is vulnerable to rising borrowing costs because of its high public debt, which is twice the size of its economy. Bonds are also the main financial assets held by banks, pension funds and insurance companies, making a surge in debt yields perilous.

Given the indebtedness of the Japanese government, there are worries about the effect that this could have if sustained, Mr. Davies said. “It is too early to say whether it will be sustained, so we should not read too much into one day’s extreme move in the markets.”

The sell-off on Thursday came in spite of economic news from Europe that was, if not good, at least better than many expected. The Markit Economics euro zone purchasing managers’ index for the manufacturing sector rose to 47.8 points from 46.7, while the services index rose to 47.5 from 47. While that points to continuing contraction, the improvement suggests the economy may be getting nearer to its nadir, setting up conditions for a rebound in the second half.

The economic data coming out of the United States on Thursday also looked better than expected. The number of people filing for unemployment benefits last week was 340,000, lower than analysts had expected and lower than the week before.

Signs of a strengthening economy could amplify the talk about the Fed slowing down its bond-buying program. But Fed officials have been emphatic that they will not pull back unless it is clear the economy can handle it. Some strategists said on Thursday that investors were overstating the risk of a Fed drawdown.

James Bullard, president of the Federal Reserve Bank of St. Louis, said in a speech in London on Thursday that the Fed was likely to “continue with the present quantitative easing program.”

David Jolly contributed reporting from Paris and Hiroko Tabuchi from Tokyo.

Article source: http://www.nytimes.com/2013/05/24/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Mixed Batch of Data Leaves Markets Subdued

May 16, 2013 by Leave a Comment

Financial markets were subdued Thursday despite encouraging growth figures out of Japan, as investors digested a mixed batch of United States economic data a day after Wall Street indexes hit record highs.

In afternoon trading, the Standard Poor’s 500-stock index was 0.1 percent lower while the Dow Jones industrial average was unchanged. The Nasdaq composite was 0.2 percent higher.

One of the reasons stocks have been buoyant for most of this year has been optimism over the American economy. But a 32,000 rise in weekly jobless claims to 360,000 and a fairly downbeat manufacturing survey from the Federal Reserve Bank of Philadelphia raised questions about the underlying health of the world’s largest economy.

However, the impact on the markets was muted given that a 0.4 percent fall in monthly Consumer Price Index, which took the annual rate down to a two-and-a-half-year low of 1.1 percent, suggested that the Federal Reserve won’t be in a rush to end its super-easy monetary policy soon. The Fed’s monetary injections over the past few years have lain behind the recovery in stock markets since 2009.

“Optimism abounds, and with inflation concerns starting to ignite concern for more rather than less bond buying ahead, it does not seem rational to sell stocks on the view that the economy may be slowing,” said Andrew Wilkinson, chief economic strategist at Miller Tabak Company.

In Europe, Germany’s DAX ended the day 0.1 percent higher while the CAC-40 in France fell 0.1 percent. The FTSE 100 of leading British shares closed 0.1 percent lower.

Japan was in focus earlier after figures fueled hopes of an economic turnaround in the country. A day after the latest set of data showed that the euro zone — the 17 European Union countries that use the euro — was in its longest recession since the currency was launched in 1999, Japanese data impressed on the upside.

Stronger consumer spending and public works investment coupled with aggressive monetary easing gave some oomph to the recovery. Japan’s economy grew by a stronger-than-expected 3.5 percent in annual terms and by 0.9 percent on a quarterly basis, according to figures reported by the Cabinet Office on Thursday.

The forecast-busting data provides the first tangible evidence that the economic policy of the new government of Prime Minister Shinzo Abe is working.

Mr. Abe promised aggressive steps to restart the country’s postwar boom, which effectively ground to a halt in the early 1990s. As part of that effort, the Bank of Japan plans to double the amount of cash circulating in the Japanese economy and held as bank reserves.

One of the offshoots of the policies has been a dramatic fall in the value of the yen, and that’s bolstered the export prospects of the country’s businesses, lifting the Nikkei 40 percent this year.

The Nikkei didn’t extend those gains Thursday, losing 0.4 percent to close at 15,037.24 as investors used the release as an opportunity to book some gains.

“If you’re looking for a clear example of the markets currently moving in a way that is unrelated to the quality of the data, then look no further than the movement in the Nikkei,” said Craig Erlam, market analyst at Alpari.

Despite the modest retreat in Tokyo, most other Asian markets advanced. Hong Kong’s Hang Seng rose 0.2 percent while South Korea’s Kospi added 0.8 percent. China’s main index in Shanghai ended 1.2 percent higher.

Currencies were fairly flat-footed, with the euro up 0.3 percent at $1.2912 and the dollar 0.1 percent lower at 102.07 yen.

Oil prices eked out some gains, with the benchmark New York rate up 48 cents to $94.78 per barrel.

Article source: http://www.nytimes.com/2013/05/17/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Markets Stay Strong, Riding Investor Confidence

May 16, 2013 by Leave a Comment

Stocks rose on Wednesday, with the Dow and Standard Poor’s 500-stock index rising to new highs in a broad market rally.

The Nasdaq also reached its highest point since November 2000, though gains were limited by a steep decline in Apple. Shares of the technology giant sold off in late afternoon trading after filings from hedge funds showed that the one-time Wall Street darling had been dropped by more hedge fund managers in the first quarter.

But shares of Apple’s rival, Google, rose to a record high at $916.38 on news that it had adopted a business model for streaming music.

The day’s gains were broad, with nine of the S. P. 500’s 10 sectors ending higher. Among the top gainers were the consumer staples sector index, up 1 percent, and the financial sector, also up 1 percent. The only decliner was the energy sector index, down 0.4 percent.

The overall market showed further signs of strength as the S. P. 500-stock index reached a high for the fourth session in a row. The broad index has recorded 15 nominal closing highs this year.

The Dow Jones industrial average rose 60.44 points, or 0.40 percent, to 15,275.69 at the close on Wednesday. The S. P. 500-stock index added 8.44 points, or 0.51 percent, to finish at 1,658.78. The Nasdaq composite index gained 9.01 points, or 0.26 percent, to close at 3,471.62.

During trading, the Dow touched a record intraday high at 15,301.34, while the S. P. 500 reached a record intraday peak at 1,661.49. Earlier, the Nasdaq reached a 52-week high at 3,475.48.

In the latest assessments of the economy, activity in New York state’s manufacturing sector unexpectedly contracted in May. Another report showed that industrial production in the United States fell more than expected in April.

“It’s disconcerting that the data was so much lower than what we were looking for, but there’s no reason for investors to sell,” said Michael Binger, senior portfolio manager at Gradient Investments in Minneapolis.

“The main things driving the market — the Fed, earnings, consumer confidence — are holding up, and people put money in the market on any down day. I still see a lot of value,” he said.

In signs that the rally may strengthen from current levels, the Credit Suisse Fear Barometer, known as the CSFB Index, fell 11.4 points over the last two weeks — the largest decline on record — and was now at a one-year low of 21.73.

“A low CSFB reading is a constructive signal for the market,” a Credit Suisse equity derivatives strategist, Mandy Xu, wrote in a note to clients.

Among Wednesday’s top gainers was Agilent Tech, up 3.9 percent to $45.68, a day after the company posted adjusted earnings that beat expectations and doubled its stock buyback program to $1 billion.

Tech shares got a lift from Netflix, up 4 percent at $243.40, and from Yahoo, up 2.6 percent at $27.34. In contrast, the Computer Sciences Corporation was the S. P. 500’s biggest loser, dropping 9.7 percent to $44.71 after reporting results.

Shares of Bristol-Myers Squibb rose 5.1 percent to $44.34 in anticipation of favorable data from clinical trials of its melanoma drug.

In other data released on Wednesday, the producer price index recorded its largest drop in three years in April, falling a seasonally adjusted 0.7 percent.

The price of the benchmark 10-year Treasury note rose 12/32 to 98 9/32, dropping the yield to 1.94 from 1.98 on Tuesday.

Article source: http://www.nytimes.com/2013/05/16/business/daily-stock-market-activity.html?partner=rss&emc=rss

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After Boost From Earnings Reports, Momentum Slows

May 10, 2013 by Leave a Comment

The stock market retreated from its nominal highs on Thursday, with the Standard Poor’s 500-stock index slipping after five days of gains.

Despite the pullback, the Dow Jones industrial average remained above the 15,000 mark, while the Standard Poor’s 500-stock index was still well above 1,600.

The length of the recent market rally has surprised some investors. Analysts said it was difficult for stocks to continue their upward momentum without further catalysts, such as first-quarter earnings reports, which are nearing an end.

“This market is so stretched to the upside that if we get some little wiggle somewhere, I can easily see us getting back down to 1,580” on the S. P. 500, said Stephen J. Massocca, managing director of Wedbush Equity Management.

The Dow industrials fell 22.50 points, or 0.2 percent, to close at 15,082.62. The S. P. 500 declined 6.02 points, or 0.4 percent, to 1,626.67. The Nasdaq composite index slipped 4.10 points, or 0.1 percent, to 3,409.17.

The day’s main economic data was basically positive, but failed to give much of a boost to stocks. The number of Americans filing new claims for unemployment benefits fell to their lowest level in more than five years.

New jobless claims fell by 4,000 last week to a seasonally adjusted 323,000, the Labor Department said. The four-week moving average of jobless claims, a less-volatile figure, dropped 6,250, to 336,750.

Apple helped lead the declines of both the S. P. 500 and the Nasdaq, falling $4.02, or 0.9 percent, to $456.77. I.B.M. was the biggest drag on the Dow, dropping $1.58, or 0.8 percent, to $203.24.

Despite the day’s declines, the Dow is up 15.1 percent so far this year, while the S. P. 500 is up 14.1 percent.

Trading was fairly volatile. The market, which had been down slightly from the opening bell through midday, reversed course and began to edge higher in early afternoon. Stocks lost steam later in the session.

Limiting the losses in the S. P. 500, News Corporation shares rose $1.46, or 4.6 percent to $33.44 after it reported earnings late Wednesday that beat expectations.

Among the stocks making big gains, Tesla Motors surged $13.61, or 24.4 percent, to $69.40 a day after posting earnings that were three times what analysts had expected, as the company sold more cars than initially forecast.

Barnes Noble shot up $4.31, or 24.3 percent, to $22.08, after TechCrunch, an influential technology Web site, published an unconfirmed report that Microsoft was considering an offer to acquire all of the company’s Nook Media’s digital assets for $1 billion. Microsoft fell 33 cents, or 1 percent, to $32.66.

In the bond market, interest rates moved up. The price of the Treasury’s 10-year note fell 21/32, to 99 14/32, while its yield rose to 1.81 percent, from 1.77 percent late Wednesday.

Article source: http://www.nytimes.com/2013/05/10/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Dow Closes Above 15,000 for the First Time

May 7, 2013 by Leave a Comment

Good economic reports, strong corporate earnings and fresh support from central banks have apparently eased investors’ concerns about another economic slowdown. Many had been on the lookout for signs of a spring swoon in the markets, as happened in each of the last three years.

Instead, the Dow has climbed almost 15 percent since Jan. 1, with other market indexes also showing strong gains.

“The thing that’s been driving stocks is rising confidence,” said James W. Paulsen, chief investment strategist at Wells Capital Management. “Economic growth, job creation and the housing market have been better than expected.”

A stronger-than-expected April employment report briefly propelled the Dow over 15,000 on Friday, but it ended the week below that mark.

The Dow industrials rose 87.31 points, or 0.6 percent, to close at 15,056.20. The Standard Poor’s 500-stock index added 8.46 points, or 0.5 percent, to 1,625.96. Both indexes first reached nominal highs earlier this year, then kept climbing.

“We don’t think people are giving enough credit to the strength of the economy,” said Ryan Detrick, a senior technical strategist at Schaeffer’s Investment Research. “We still like the market.”

The Nasdaq composite rose 3.66 points, or 0.1 percent, to 3,396.63. It still remains well below its nominal closing high of 5,048.62, reached during the dot-com boom in March 2000.

A report on Tuesday showed that consumer borrowing rose in March at its slowest pace in eight months. The Federal Reserve said borrowing rose $8 billion in March from February to a seasonally adjusted $2.81 trillion.

The increase was driven by more loans to attend school and buy cars. The category that measures those loans increased $9.7 billion to $19.6 trillion. A measure of credit card debt fell $1.7 billion to $846 billion, 17.2 percent below the peak of $1.02 trillion set in July 2008.

The stock market’s gains seem to have coincided with a growing belief among investors that the normal threats to rising stock prices — higher interest rates, falling profits, a possible recession — are unlikely to appear anytime soon. In any case, with interest rates near record lows, they see few other places to put their money.

Strong corporate profits have also been encouraging. More than 400 of the S. P. 500 companies have turned in first-quarter results, and more than seven out of 10 have beaten Wall Street’s expectations, according to SP Capital IQ. Those analysts estimated that earnings increased 5 percent in the first quarter and will improve through the rest of the year.

Among the stocks on the move, Fossil, a maker of watches and handbags, leapt $8.92, or 9 percent, to $107.88 after the company said higher sales had lifted its earnings.

DirecTV, the country’s largest provider of satellite TV services, surged $3.99, or 7 percent, to $61.95 after its earnings beat analysts’ expectations. The company reported more subscribers in the United States and Latin America.

In the bond market, interest rates edged higher. The price of the 10-year Treasury note slipped 5/32, to 101 31/32, while its yield rose to 1.78 percent from 1.76 percent late Monday. Yields increased over the last week, as traders shifted money out of the safety of the Treasury market. The yield on the 10-year note sank to its low for the year, 1.62 percent, on Thursday.

Article source: http://www.nytimes.com/2013/05/08/business/daily-stock-market-activity.html?partner=rss&emc=rss

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DealBook: Market Delay in Chicago Points Again to Technology

April 26, 2013 by Leave a Comment

A trader at the Chicago Board Options Exchange in March. Traders said Thursday's delay made the exchange unusually quiet.Scott Olson/Getty ImagesA trader at the Chicago Board Options Exchange in March. Traders said Thursday’s delay made the exchange unusually quiet.

9:24 p.m. | Updated

Trading on the nation’s largest options exchange was delayed for several hours on Thursday because of computer problems, the latest incident to highlight the vulnerability of markets to technological shocks.

The Chicago Board Options Exchange, which normally begins trading for most of its products at 9:30 a.m. Eastern time, returned to normal operations by early afternoon. But brokers who typically trade tens of thousands of options each day through the exchange sat on the sidelines for much of the morning.

The exchange trades options based on the Standard Poor’s 500-stock index and the VIX index, a popular barometer of investor sentiment about volatility in United States stock markets. The contracts are important tools among investors seeking ways to hedge their stock holdings.

The system failure was the second instance this week of technology intruding into the markets. Earlier this week, a message from The Associated Press’s Twitter account falsely reported explosions at the White House, causing the Dow Jones industrial average to plunge nearly 150 points in two minutes. The markets rebounded quickly after The A.P. said its account had been hacked.

Also, the market debut of Facebook was botched last May, and a blowup at Knight Capital rattled the markets and nearly toppled the firm.

In today’s rapid-speed electronic trading world, where high-frequency traders zip in and out of stocks and futures at speeds that are faster than the blink of an eye, the nation’s exchanges have sometimes struggled to keep up. Probably most famous is the “flash crash” of May 2010 that sent the Dow into a tailspin. It took regulators months to figure out how what caused the index, already down more than 300 points, to suddenly drop like a stone to a 1,000-point loss before recovering much of that within 20 minutes.

The malfunction in Chicago stoked fear again among regulators and reignited concerns about the market’s vulnerability to broader shocks.

“The recurrence of technology glitches in markets means we need not blindly accept that the whiz-bang machinery will always work as well as it should have,” said Bart Chilton, a regulator at the Commodity Futures Trading Commission. “On the contrary, we need to open our eyes to that fact.”

A news release from the exchange said the cause of delay was “an internal systems issue and not the result of any outside influence.” The exchange has told authorities that the problem stemmed from a “bug” in its computer software, said a person briefed on the matter who was not authorized to speak publicly. Although the exchange is still searching for the source of the problem, the person said, it assured authorities that it did not expect a repeat of the problem on Friday.

Analysts said while investors could find alternatives to S. P. 500 options, few good alternatives were available for the VIX index.

The first notice that something was awry at the exchange came soon after 8 a.m. Eastern time, when the exchange’s system said that some users were experiencing “issues” downloading certain products. The exchange delayed its opening, expecting to start trading about 10:15 a.m., according to notices sent to traders.

That opening never happened. For several hours the exchange could not provide an expected opening time. Finally, more than three and a half hours past its usual opening, the exchange said all trading would begin at 1 p.m. About a half-hour later, the exchange reported all systems were operating normally.

Justin Kaechele, a trader for BFL Trading, said he received news that the system was down minutes before trading was supposed to begin.

“A lot of companies had some trades planned at that time,” he said. “I don’t know what happened with those, but we had some unhappy customers.”

With nothing to do, traders said they made small talk about various things: sports, the headaches of buying a home, the rising cost of sending their children to private school.

Brian Gilbart, a trader for Belvedere Trading, said the absence of continuous action that normally filled the room could be strongly felt.

“It was eerily quiet,” he said. “The most quiet I’ve ever heard it.”

In an industry where every minute is an opportunity to make more money, the lost time was frustrating. “I think everybody’s mad,” Mr. Gilbart said when asked to describe the mood inside. “Brokers probably lost business.”

Observers said although the failure most likely idled investors trading the volatility index in the morning, it was fortunate that the equity markets were relatively quiet and stable.

“We would be having a very different conversation if the S. P. 500 was down 50 points or more,” said Mark Sebastian, the chief operating officer of Option Pit, an educational and consulting firm. “It is kind of a slow day, so this wasn’t a big deal.”

As the problems in Chicago emerged on Thursday, the Securities and Exchange Commission mobilized its “market event response team” in Washington, a collection of experts at the agency who monitor trading mishaps in real time, according to officials briefed on the matter. Concerns grew at the agency as the exchange failed to get back online.

“The S.E.C. staff became aware of the situation just before the opening this morning and has monitored developments throughout the day, as is our practice,” John Nester, an agency spokesman, said Thursday. “The commission staff will continue to consult closely with the C.B.O.E. to understand the precise reason for the trading interruption and remediation measures.”

The commodities agency also spoke to exchange employees, the officials said. But the agency stepped aside upon learning that the problems did not affect the futures side of the business.

The incident comes at a difficult time for the Chicago platform, as the S.E.C. increases its scrutiny of the nation’s largest exchanges. The S.E.C. is already investigating the exchange for not properly policing the markets. By Thursday afternoon, the officials said, the agency’s enforcement unit had not opened an investigation into the system problems.

Steven Yaccino contributed reporting from Chicago.

This post has been revised to reflect the following correction:

Correction: April 26, 2013

An earlier version of this post misspelled the name of a trader at Belvedere Trading. He is Brian Gilbart, not Brian Gilbert.

Article source: http://dealbook.nytimes.com/2013/04/25/system-failure-delays-options-exchange/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Markets, Mixed, Look for a Direction

April 22, 2013 by Leave a Comment

Stocks were mixed on Monday as an assortment of corporate earnings pointed to an uncertain growth outlook, which could lead to more volatile trading ahead.

In afternoon trading the Standard Poor’s 500-stock index gained 0.2 percent, and the Dow Jones industrial average lost 0.2 percent, while the Nasdaq composite rose 0.5 percent.

While a majority of S.P. 500 companies that have reported earnings so far have topped analysts’ expectations, as is typical, a number of high-profile disappointments have raised questions about whether the market’s steep run so far this year may be out of gas.

General Electric and McDonald’s both fell for a fourth straight day, extending declines from Friday, when both companies reported lackluster results. G.E. is down more than 8 percent over the last four sessions and on Monday, it fell 2.1 percent, while McDonald’s lost 1.2 percent.

“Weak corporate outlooks have added to the growth fears that are making investors more risk averse,” said Eric Green, senior portfolio manager at Penn Capital Management in Philadelphia. “Ultimately, we think cyclical names will lead the market higher, but in the short term, the decline could continue.”

Last week was marked by heightened volatility, with the Chicago Board Options Exchange’s Volatility Index — the VIX, also known as the fear index — jumping 24 percent, the biggest weekly gain this year. The VIX was up 1.9 percent at 15.26 at midday on Monday, off its intraday high of 16.00.

The swings were largely driven by weak corporate earnings and signs of slowing growth from China, which contributed to a precipitous drop in commodity prices. The week’s decline fueled talk that the market’s long-awaited pullback had arrived, though the S.P. remains up 9 percent on the year.

The Nasdaq held in modestly positive territory on strength in Microsoft, which jumped 3.5 percent after CNBC reported that ValueAct Capital had taken a $2 billion stake in the company.

Netflix was the S.P.’s top percentage gainer, up 4.9 percent. The online movie rental company is set to report its results after the market closes.

The National Association of Realtors said existing home sales slipped 0.6 percent last month to a seasonally adjusted annual rate of 4.92 million units. Economists polled by Reuters had expected home resales to rise to an annual rate of 5.01 million units.

Caterpillar cut its outlook for 2013 early Monday, and but shares rose 2.7 percent by early afternoon. Halliburton, which reported a $1 billion charge related to talks to settle claims involving the 2010 Gulf of Mexico oil spill, rose 4.7 percent.

Italy’s blue-chip shares led European stocks higher, heartened by signs of progress in breaking a long political stalemate after a week of broad market losses.

The Japanese yen weakened toward 100 to the dollar on Monday and shares rose after the Group of 20 meeting of nations accepted Japan’s bold stimulus policies, helping to counter the gloom over the global growth outlook.

In its communiqué after a two-day meeting, the G-20 avoided any direct criticism of Japan’s policies and appeared to accept the need to reflate the world’s third largest economy as part of efforts to invigorate a shaky global economic recovery.

The Nikkei index in Tokyo ended the day 1.9 percent higher. Elsewhere in Asia, markets were mixed, with the Hang Seng in Hong Kong 0.1 percent higher, while the Shanghai composite 0.1 fell percent.

European stock markets were on course for a second straight daily gain, helped up by a jump in Italy’s blue-chip index after the country’s long-running political crisis moved a step closer to resolution.

Milan’s FTSE MIB index gained as much as 2 percent on hopes the re-election of Italy’s 87-year-old president, Giorgio Napolitano, would see a new government emerge within days, ending two months of political stalemate.

The broad FTSEurofirst 300 index ended the trading day up 0.2 percent, while Paris’s CAC 40 closed unchanged and Frankfurt’s DAX gained 0.2 percent.

Oil also rebounded, extending its gains into a third day as low prices brought buyers back into the market. Benchmark light, sweet crude gained 0.3 percent, to $88.30 a barrel.

Article source: http://www.nytimes.com/2013/04/23/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,
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