U.S. Stocks Fall on Sales of S&P 500 Futures;
July 24 (Bloomberg) -- U.S. stocks dropped as a bout of futures-related selling wiped out gains tied to a government report that fewer than 400,000 Americans sought unemployment benefits last week for the first time since February.
The retreat began at midafternoon in the pits of the Chicago Mercantile Exchange amid the sale of hundreds of Standard & Poor's 500 Index futures, said traders such as Citigroup Inc.'s Philip Ruffat. The September contracts declined far enough below the index's value to make it profitable to buy them and sell the underlying stock at the same time.
Stocks had risen earlier after the report on jobless claims suggested the economy may be picking up. Citrix Systems Inc. and Electronic Data Systems Corp. led the decline after releasing or forecasting quarterly earnings that were below estimates.
The S&P 500 shed 7.01, or 0.7 percent, to 981.60 after rising as much as 1 percent. The Dow Jones Industrial Average fell 81.73, or 0.9 percent, to 9112.51. The Nasdaq Composite Index lost 17.76, or 1 percent, to 1701.42.
``There was some aggressive futures selling that broke the back of the market,'' said Joseph DeMarco, head of trading for HSBC Asset Management Americas Inc. in New York. The S&P 500 is likely to bounce between 965 and 1015 in the coming days because investors ``have discounted to a fair degree an earnings and economic recovery,'' he said.
Wayward Plane
Stocks also dropped after the Philadelphia Inquirer reported that a plane entered a no-fly zone while President George W. Bush was visiting Philadelphia, some traders said. Four F-16 fighter jets forced the Cessna four-seat plane to land at an airport in New Jersey, the Inquirer said. The U.S. Secret Service is investigating the incident.
Many traders and investors are off this week on summer vacations, so the market is prone to abrupt price swings, said Mace Blicksilver of Marblehead Asset Management, a New York hedge fund.
Two brokerage firms sold 200 to 300 contracts apiece beginning around 2:15 p.m. New York time, said Citigroup's Ruffat. The sales pushed prices lower in part because there were relatively few traders in the pit, he said. The decline caused futures to drop to prices at which other firms had pre-set sell orders, he said.
Each S&P 500 contract has a value of about $247,000, so a sale of 600 represents a $148 million bet that the market will decline. The September contract dropped 7.30, or 0.7 percent, to 980.30 after climbing as high as 998.
September futures dropped as much as 3.1 points below the S&P 500's value. Discounts of 2.5 points or more provided the opportunity to profit by buying contracts and selling shares in ``index arbitrage'' trades, according to Bloomberg data.
Scott Fine, an independent trader at the mercantile exchange, was sitting in the break room playing spades with his buddies when stocks collapsed. ``I got in there,'' he said, but ``by that time the selling was pretty much over.'' |
