Stocks closed broadly higher Tuesday, with the notable exception of technology issues. Tech stocks slipped ahead of key fourth-quarter earnings reports released after Tuesday’s close.
In after-hours trading, shares in chip giant Intel and networking favorite Juniper Networks climbed after the firms posted better-than-expected quarterly results.
The Dow Jones industrial average jumped 127.28 points, or 1.2 percent, to 10,652.66, on New York Stock Exchange volume of 1.2 billion shares. Winning stocks outnumbered losers by a 3-2 ratio among NYSE stocks. The Standard & Poor’s 500 index added 8.33, to 1326.65.
Banking, pharmaceutical, consumer products and basic industry stocks led the blue-chip gainers.
The Nasdaq composite index slipped 7.95, to 2618.55. Nasdaq volume reached 2.06 billion shares. Winners topped losers by about a 5-3 ratio.
Oil prices held above the $30-a-barrel mark ahead of Wednesday’s meeting of OPEC ministers. Crude oil for February delivery rose 24 cents a barrel, to $30.29, in New York futures trading.
Old and new fear: The debate about the old economy versus the new economy includes many absurdities.
Most companies are a blend of high and low tech. Many investors learned, to their regret, that there is no rationale that justifies overly optimistic prices for new-economy tech stocks.
But the new economy/old economy dialectic worked quite well last year as a way to frame short-term market analysis and explain the importance of investment diversification, according to a new stock index about to be published by the Chicago Board Options Exchange.
The proposed index, called the Nasdaq volatility index, with a ticker symbol of VXN, measures the implied volatility in options on the Nasdaq 100 stock index, a basket of the biggest tech stocks.
According to back-tested data, the Nasdaq volatility index is the “mirror image” of the CBOE’s current volatility index (symbol VIX) based on the Standard & Poor’s 100 index, comprising mostly old-economy giants, according to Joseph Levine, vice president for research and planning at the CBOE.
Both indexes measure investor fear. The VIX soared in April, October and December as investors abandoned stocks in favor of money funds and Treasuries.
But the Nasdaq 100 VXN fear gauge was dramatically worse, according to unpublished data.
Robert Whaley, a professor of finance at Duke University who helped develop both indexes, said that the tech-heavy VXN index from 1995 through 1998 ran on average about 8 index points higher than the old-economy VIX index–an expected result, given the more speculative nature of tech stocks.
But in 1999, the spread between the old economy fear index and the new economy fear index doubled to 16 points. Last year, it doubled again, to 35 points. To put the gap in perspective, the published range of the VIX index last year was 18 points to 41 points.
“People became genuinely frightened regarding the tech stocks versus the old economy stocks,” Whaley said. “It’s as if two markets have separated completely.”
For much of the late 1990s, investors were rewarded richly for taking greater risks in big-name tech stocks. But, according to the new CBOE data, tech volatility has become the twilight zone of the stock market and may require even higher returns to justify the risk.
Treasury auction: Rates increased at the Treasury’s weekly auction of 3- and 6-month bills.
The discount rate on 3-month bills was 5.22 percent, up from 5.05 percent last week. The rate on 6-month bills was 5.05 percent, up from 4.82 percent last week. The coupon-equivalent rates were 5.36 percent for 3-month bills and 5.26 for 6-month bills.
Local news: Quotesmith.com, Darien, an online insurance rate reporting service, has failed to maintain the minimum $1 bid price required for its shares to be listed on the Nasdaq market. Shareholders may be asked to approve a 1-for-6 reverse stock split to boost the share price. The stock, which traded as high as $12.56 last January, closed at 69 cents.
– Universal Access, Chicago, a provider of telephone services, jumped 28 percent, to $10.44, after the company said it expects to report fourth-quarter revenues greater than the $19 million it forecast.
