Was Monday’s fall one we didn’t have to have?
The sharp fall on the Australian market yesterday was yet another example of local fund managers and small investors jumping at shadows.
There was just no reason for the big falls and the selling that went on up to the close of trading. And that contention was supported by trading offshore overnight, and especially in the US.
As a result there should be a few shame-faced investors around the local market yesterday who sold for no apparent reason, except others were selling.
With the local market set to gain by around 28 points this morning, there should be a lot of investors ruing profits they have now handed to the buyers in yesterday’s selling surge who will ride prices higher today.
Our market’s make up means the low share of trading held by tech stocks gives us some protection against the sell off on Wall Street – and yet that wasn’t the case yesterday as nervous investors hastened to catch up to Wall Street’s fall on Friday.
As a result, the share price futures market suggested a fall of around 19 points at the start on Monday – which is about what happened.
But then the nervous nellies took fright at rumours at Ukraine, the health of corporate earnings from the US, and anything else that could be construed as a negative factor. Fears that the Nasdaq weakness would spread to other markets was an oft mentioned reason, and yet that has been happening now for some weeks, without markets falling out of bed.
So the market lost 1.28% or 69.7 points on the ASX 200 and 1.29% or nearly 70 points for the All Ordinaries – all for no real reason, except that investment managers and others who drove yesterday’s selling exhibited all the courage of a flock of panicked sheep.
The performance in Australia was markedly different yesterday to that elsewhere in the Asian region and in Europe was very different where there were gains for most markets.
And overnight, the US markets finished higher, withstanding a bout of selling on the Nasdaq and especially among biotech stocks, the seat of the current bout of volatility.
Wall Street wobbled in late trade, with the Nasdaq briefly dipping into negative territory before regaining confidence and closing higher.
By the end of trading, the Nasdaq Composite rose 22.96 points, or 0.6%, to close at 4,022.69
The Dow had a triple-digit gain for the day, despite the pressures from the Nasdaq.
It in fact ended near tits highs for the day, which is usually considered to be a positive sign.
The Dow jumped 146.49 points, or 0.9%, to 16,173.24 and the main market index, the S&P 500 rose 14.92 points, or 0.8%, to 1,830.61.
Why the positive session in the Dow and the S&P 500?
Well, Citigroup’s first quarter results were better than expected (they were still not very good) and retail sales jumped sharply as the US consumer went shopping in March after the big winter chill.
In fact while retail sales in March jumped 1.1%, February’s figure was revised to a gain of 0.7%, more than double its previous estimate. Sales had fallen in January and December, thanks to the severe winter.
The new figures for February and March immediately saw economists start revising up their estimates of first quarter GDP for the US.
But once you drill down into the trading on Nasdaq on the day you find that biotechs again sustained a rotten session and drove most of the day’s volatility.
Marketwatch pointed out this morning that three out of four major biotechnology exchange-traded funds ETF), plus some of the market’s major biotech stocks, fell overnight, ending the day with solid losses.
For example, the SPDR S&P Biotech ETF fell 1.7% overnight and is now 29% under its peak in late February. Two other ETFs, the iShares Nasdaq Biotechnology ETF and the First Trust Arca Biotechnology Index Fund also fell. The First Trust fund, along with its companion NYSE Arca Biotechnology Index now are more than 20% off their late February highs.
The Nasdaq Biotech Index was up 2.7% in late morning trading, then fell sharply to be down 1.8% with around an hour of trading to go (around 5 am Sydney time).
It ended down 0.2% as late buying emerged, but has now lost almost 17% of its value in the past month.
That activity in biotechs overnight first helped send the wider Nasdaq market higher in the morning, and then selling pushed it lower in the afternoon.
The market finished with a solid gain on the day as the selling pressures eased in biotechs, and buying emerged for other tech-related stocks.
The lesson for our market from the overnight trading is that biotech volatility in Wall Street is a problem specific to the American markets and investors, not Australia.
And the Australian market today? Well, the futures contract reckons it will be up around 28 points at the start. That’s a long way from Mournful Monday’s antics.
And a final point – the Aussie dollar traded above 94 US cents overnight (and hardly budged in local trading during yesterday’s selling).
That should tell us that the nervousness was only in the minds of sharemarket investors yesterday and that the hard heads in the foreign exchange market didn’t take much notice.
