Fear strikes out on Wall Street

NEW YORK - Whatever investors are worried about right now, those concerns are not showing up in Wall Street's fear gauge. That scares some. On the other hand, it more than likely means that stocks will keep taking things slow and steady.

The CBOE Volatility Index, or VIX, closed on Friday at 11.36, its lowest level since March 2013. That means investors see less risk ahead, particularly with the S&P 500 ending at a record high again on Friday.

With the typically slow summer months just ahead and little on the horizon to shake the market from its current course, investors could be looking at even lower VIX levels, some analysts said.

"It's not that there's no likelihood of a correction. It's that people don't perceive anything to derail the train at this point," said Andrew Wilkinson, chief market analyst at Interactive Brokers LLC in Greenwich, Connecticut. "So I think people are beginning to wonder: Are we heading back to single-digit volatility?"

The S&P 500's record high and the drop in the VIX are not the only signs that fear is not a factor on Wall Street.

Volume is down as well. S&P 500 E-mini futures volume was below the 1.52 million daily average of the past year on every day this week except Tuesday.

The market's gain has come despite concerns about a slowdown in China and weakness in small-cap names. Typically small-cap stocks lead the market's advance when the U.S. economy is improving.

However, the recent selloff in small-cap stocks, which drove the Russell 2000 index briefly into correction territory last week, seems to have slowed. The Russell gained 2.1 percent this week, its biggest weekly bounce in more than a month. The index is less than 7 percent below its record close of 1,208.65 in early March.

At the same time, the Dow Jones Transportation Average hit record territory late Friday, nearly breaking above the 8,000 level.

"One of the reasons the VIX is so low, we haven't really done anything this year. We haven't moved an awful lot," said J.J. Kinahan, chief derivatives officer of TD Ameritrade in Chicago.

For the year, the S&P 500 has gained just 2.8 percent.

To be sure, some analysts say the lack of volatility suggests a complacency that could encourage excessive risk-taking. New York Federal Reserve Bank President William Dudley and Dallas Fed President Richard Fisher have both expressed such concerns in recent days.

"The lower the VIX, the more overbought the market gets, leaving it vulnerable to some kind of setback," said Donald Selkin, chief market strategist at National Securities in New York.

But the lack of volatility is also showing up in the foreign-exchange and commodities markets, according to Bespoke Investment Group analysts. They noted lower implied volatility in options in the foreign-exchange market as well as recent stability in the PowerShares Deutsche Bank Agriculture Index exchange-traded fund.


"If the VIX index is pricing in too little volatility, then why is it wrong to do so?" Bespoke analysts wrote. — Reuters

source: gmanetwork.com

Wall St edges up following strong jobs report

NEW YORK - U.S. stocks edged higher on Friday following a payroll report that suggested a sharp rebound in economic activity early in the second quarter.

Still, while the report provided an encouraging read on the labor market, investors said Wall Street's gains over the week made further advances unlikely.

U.S. job growth increased at its fastest pace in more than two years in April and the unemployment rate dived to a 5-1/2 year low of 6.3 percent, the Labor Department said. The payrolls gain of 288,000 was the largest since January 2012 and beat Wall Street's expectations for an increase of just 210,000.

The unemployment rate tumbled 0.4 percentage point, touching its lowest level since September 2008. The Labor Department attributed the decline to a drop in the number of unemployed people reentering the labor market as well as a fall in new entrants into the labor force.

"The headline number handily beat expectations, which bodes well for the whole weather theme we saw throughout the first quarter," said Adam Sarhan, chief executive of Sarhan Capital in New York.

"We'll move higher on this but we had a big move this week. We're at resistance right now, and it may take a little bit of time to break above that."

The Dow Jones industrial average rose 30.96 points, or 0.19 percent, to 16,589.83, the S&P 500 gained 3.57 points, or 0.19 percent, to 1,887.25 and the Nasdaq Composite added 1.412 points, or 0.03 percent, to 4,128.863.

For the week, the Dow has gained 1.4 percent, while the S&P 500 and the Nasdaq are both up 1.3 percent.

In company news, U.S. drug maker Pfizer Inc 's sweetened 63 billion pound ($106 billion) bid for AstraZeneca Plc was promptly rejected by the British company Friday. Pfizer shares were down 1 percent at $30.84.

LinkedIn Corp shares slipped 4.7 percent to $153.68, a day after the social networking company forecast 2014 revenue below Wall Street's expectations, underscoring concerns about its ability to sustain its rapid growth.

Shares of Ares Management LP, the first U.S. private equity firm to go public in about two years, fell to a low of $18 in early trading on the New York Stock Exchange after being priced at $19, well below the expected range of $21-23, in a turbulent IPO market. They were last trading at $18.39.

German drug maker Bayer AG is nearing an agreement to buy Merck & Co Inc's consumer healthcare unit, people familiar with the matter said, in a deal that could value the business at around $14 billion. Merck shares lost 1.2 percent to $58.93. — Reuters

source: gmanetwork.com

Stocks fall as Nasdaq slides; dollar eases on jobs data

NEW YORK - A slide in biotech stocks pulled Wall Street and a measure of global equities lower on Friday despite a solid U.S. jobs report that weakened the dollar on views that the Federal Reserve will keep scaling back its stimulus.
   
The U.S. bond market, surprisingly, rallied, particularly five-year Treasury notes, which had been weak lately on fears the Fed could raise interest rates earlier than anticipated.
   
The FTSEurofirst 300 index of European shares touched a peak last seen in 2008 on the U.S. jobs data and closed higher, for a ninth straight gain and marking the third consecutive week of higher closes.
   
But stocks on Wall Street retreated after stabilizing earlier in the week as momentum stocks such as biotechs fell for a second straight session. The Nasdaq biotech index lost 4.01 percent, and the Nasdaq composite fell 2.6 percent in its worse single-day loss in two months.
   
The decline pulled down U.S. stocks and global equities.
   
"You've got some big names in there. There is a high correlation inside of those groups," said Keith Bliss, senior vice president at Cuttone & Co in New York. "Managers tend to trade the entire group as opposed to individual names. So that of course, is hitting the Nasdaq and everybody else."
   
Equities had opened higher on optimism spurred by the U.S. nonfarm payrolls report, which a gain of 192,000 jobs in March, just shy of the 200,000 forecast, after rising 197,000 in February. The unemployment rate was unchanged at 6.7 percent.
   
With a solid pace of hiring for a second month, the U.S. economy appears to be recovering from a winter slowdown.

A smaller survey of households, from which the unemployment rate is derived, showed a much bigger surge in employment. That jump was met by a rise in the number of people entering the labor force, a show of confidence in the U.S. job market.
   
The percentage of working-age Americans with a job reached its highest level since the summer of 2009.
   
"I'm surprised by the overall weakness today, but since it is concentrated in names that have been weak, I think it is just a continuation of that. I'm not concerned about this spilling over to the broader market," said David Joy, chief market strategist at Ameriprise Financial in Boston, where he helps oversee $703 billion in assets under management.
   
"We've been in a trading range, finding resistance at record levels, so this isn't cause for alarm. The data is getting stronger, which suggests we have an opportunity to move higher with participation from other groups," Joy said.
   
The S&P 500 hit a record high before retreating. MSCI's all-country world stock index fell 0.45 percent.
   
The Dow Jones industrial average fell 159.84 points, or 0.96 percent, to 16,412.71. The S&P 500 lost 23.68 points, or 1.25 percent, to 1,865.09, and the Nasdaq Composite dropped 110.014 points, or 2.6 percent, to 4,127.726.
   
For the week, the Dow rose 0.6 percent, the S&P gained 0.4 percent, and the Nasdaq fell 0.7 percent.
   
Bond prices rose, with the five-year up 13/32 in price to yield 1.7022 percent. The benchmark 10-year U.S. Treasury note rose 17/32 in price to yield 2.7261 percent.
   
"This (jobs) number doesn't give any reason to move up the Fed timing of rate hikes, which is what was feared most," said John Briggs, U.S. rates strategist at RBS in Stamford, Connecticut.
   
The FTSEurofirst 300 index closed up 0.56 percent at 1,352.78.
   
The dollar was choppy against the euro and declined against other major currencies despite the U.S. jobs gains.
   
"It's a Goldilocks report, not too warm and not too cold, and puts pressure on the next report in May to be good," Anthony Valeri, investment strategist at LPL Financial in San Diego, said. "It doesn't change the pace of tapering and shows the economy is still on track."
   
The greenback was up 0.14 percent against the euro at $1.3695. It fell 0.66 percent to 103.22 against the Japanese yen after hitting a session high of 104.12 yen in trading immediately after the employment report.
   
Brent crude rose above $106 a barrel as expectations of a deal to reopen vital Libyan oil ports were offset by doubts that a lasting resolution was imminent.
   
Brent crude settled up 57 cents at $106.15 a barrel. U.S. crude, or West Texas Intermediate, rose 85 cents to settle at $101.14 a barrel. — Reuters

source:  gmanetwork.com