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Fear Muted in Nasdaq Amid Biggest Swings in Two Years

A Employee Sorts Orders at an Inc. Fulfillment Center
Declines in Amazon, Facebook Inc. and a group of semiconductor manufacturers pushed the Nasdaq 100 down 58 points to 3,533 in the last session. Photographer: Simon Dawson/Bloomberg

April 28 (Bloomberg) -- The fear gauge for technology stocks shows little panic among investors even after the Nasdaq 100 Index’s wildest swings in two years.

The Chicago Board Options Exchange’s measure of expectations for future volatility on the Nasdaq 100 fell 4.1 percent to 18.59 last week, the lowest level since 2012 compared with a gauge tracking the magnitude of recent share-price moves. That shows traders aren’t too worried that declines will dramatically worsen after stocks from Inc. to Netflix Inc. slid more than 5 percent last week.

“Usually when there’s a gut punch, things turn around,” Randall Warren, who manages more than $100 million at Exton, Pennsylvania-based Warren Financial Service, said by phone on April 25. “The potential to the upside seems a lot stronger because the economy seems like it’s getting slightly better. The drop we’ve had has been pretty precipitous already.”

The Nasdaq 100 has fallen in four of the past five weeks amid concern earnings growth is too slow to justify equity valuations. Losses were heaviest in companies that have posted the biggest gains in the past five years. With the broader market near a record and U.S. unemployment forecast to stay near a five-year low next week, technology shares are poised for a rebound, Warren said. He recently added to existing Nasdaq 100 stock and ETF holdings.

Stocks Slump

Declines in Amazon, Facebook Inc. and a group of semiconductor manufacturers pushed the Nasdaq 100 down 58 points to 3,533 in the last session. The measure is down 1.6 percent this year after soaring 35 percent in 2013. It’s up almost 240 percent since the bull market began in 2009 and has risen in 10 of the last 11 years.

Recent selloffs in the Nasdaq 100 have turned out to be buying opportunities. In the past year, the index declined 5.2 percent between Jan. 22 and Feb. 3, slipped 3.4 percent from Oct. 2 to Oct. 9, and dropped 6 percent from May 17 through June 24. Each time, the index was above its previous high within a month.

Investors are shunning options to protect equity holdings from losses because the strategy has proven to be a bad one during the bull market, according to Eric Metz, a derivatives strategist and fund manager at RiverNorth Capital Management LLC.

Portfolio Drag

“The more people purchase it without it paying off creates a drag on their portfolios, and to some extent some people may cease doing that,” Metz said by phone from Chicago. RiverNorth manages about $2 billion. “I don’t think broad-based protection is going to be in all that much demand.”

That’s helping suppress CBOE’s Volatility Index, a measure of the cost of contracts on the Standard & Poor’s 500 Index, compared with past market selloffs, he said. With fewer traders asking their brokers for an equity hedge, VIX trading has dropped. An average of about 360,000 options per day changed hands on the gauge last week, about 40 percent below the 20-day average, data compiled by Bloomberg show.

The Nasdaq 100 Volatility Index has dropped 18 percent since April 11 amid confidence that the stock-market retreat will be short lived. The VIX for S&P 500 options fell 0.6 percent to 13.97 at the close in New York today, snapping three days of gains.

The opposite happened to actual volatility after earnings data triggered a rally in Apple Inc. shares while Amazon plunged. The Nasdaq 100 rose or fell at least 0.7 percent in the past five days.

Stock Swings

A measure of the magnitude of price moves from the past 20 days has doubled since the beginning of March and is higher than any time since Europe’s sovereign debt crisis was ending in 2012. It is up 5.3 percent in the past two weeks to 22.7, data compiled by Bloomberg show. Swings that big usually push up the cost of options, prices that are represented by a value known as implied volatility.

Amazon dropped 6.5 percent last week to $303.83, the lowest close since October. The world’s largest online retailer is pouring cash into expanding its business at the expense of profits. Facebook, which climbed 105 percent in 2013, slid 2.1 percent. Netflix, which nearly quadrupled last year, tumbled 6.8 percent.

Apple rallied 9 percent in the past five days to $571.94, the highest level since 2012. The company reported surging sales of iPhones after the handset became available through China Mobile Ltd. Apple will increase its share repurchase authorization by $30 billion, boost its dividend and split its stock seven for one.

Pretty Rich

Volatility isn’t going away anytime soon, according to Brian Barish, who helps oversee about $10 billion as president and chief investment officer of Cambiar Investors LLC. Internet stocks will probably drop for several more weeks because earnings don’t justify current valuations, he said.

“Some of this stuff is pretty rich,” said Barish in an April 25 phone interview from Denver. The slump in technology stocks “could keep going a long way before it finds a level where it corresponds with anything that’s routed in financial reality,” he said.

Barish said earlier this year he sold his stake in Integrated Device Technology Inc., a chipmaker, and Arris Group Inc., which produces communication equipment. Both stocks have price-earnings ratios exceeding 47, data compiled by Bloomberg show.

Since reaching a 13-year high on March 5, the Nasdaq 100 has lost 5.2 percent, including a 3.1 percent loss on April 10 that was the biggest single-day retreat since November 2011. The S&P 500 has fared better and is less than 2 percent away from a record.

Not Concerned

“If you don’t see a more than five percent correction, you’re not getting too concerned about it,” Manish Singh, who helps oversee $2 billion, including Apple shares, as head of investments at Crossbridge Capital in London, said in an April 25 phone interview. “I expect the market to get better, perhaps starting with non-farm payrolls. I look at good data as confirmation that things will get better.”

U.S. employers probably added 215,000 positions in April, the biggest increase since November, according to economists surveyed by Bloomberg. The report will be released on May 2.

Technology companies are projected to increase earnings faster than any other major industry except telephone companies. Income for the S&P 500 group may expand 11.7 percent in 2014, up from a projection of 11.5 percent a week earlier, according to analyst estimates compiled by Bloomberg.

“The decline from the peak isn’t very much,” Jason Benowitz, a senior portfolio manager who helps oversee about $4.6 billion, including Facebook shares, at Roosevelt Investment Group Inc. in New York, said in an April 25 phone interview. “We’re not too concerned about this trend continuing.”

To contact the reporters on this story: Joseph Ciolli in New York at; Callie Bost in New York at

To contact the editors responsible for this story: Lynn Thomasson at

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