Dollars and Sense: Book buzz rattles volatile Wall Street

Volatility up. It was an up-and-down week on Wall Street last week. The Dow Jones Industrial Average had a number of 100-point days, and the Nasdaq had some triple-digit moves. Twitter, Facebook, and Netflix were all down dramatically at different times during the week. A week ago Friday, the Nasdaq fell 2.6 percent in a single day. Should we be worried there’s something structurally wrong with the economy? Most analysts say no. They note the markets were also up a few days last week, and the Nasdaq is nearly 1,000 points higher than one year ago. Now that earnings season has started, we’re going to see some high-volume days. The volatility will likely continue.

Some good news. Among the few government reports issued this week, there was good news. Wholesale inventories increased 0.5 percent in February following an increase of 0.8 percent in January, the U.S. Commerce Department said. Wholesale prices also rose. While a rise in wholesale prices could be an early warning of inflation—and a rise in inventories could indicate a slowing retail sector—the markets took both increases as good signs, especially in the context of rising consumer confidence. Overseas, Japan’s Nikkei average fell 2.1 percent when Japan’s central bank announced it would not ramp up its economic stimulus program. Most of the other global markets interpreted that decision as a sign Japan’s economy didn’t need the stimulus. Markets in Hong Kong, France, China, and Germany all closed higher.

High frequency trading. Last Sunday night, the TV show 60 Minutes did a program on Michael Lewis’ new book about high-frequency trading. Lewis claims the markets are rigged in favor of high-frequency traders. But a lot of experts find Lewis’ arguments unconvincing. They say high-frequency trading brings liquidity to the markets and allows rapid buying and selling that sometimes contributes to volatility, but can just as often settle down panics. By the middle of the week, most of the anxiety about high-frequency trading seemed to have settled down.

Earnings season. Alcoa kicked off earnings season, and it beat expectations. Some banks released their earnings Friday. Wells Fargo was the most notable; its earnings beat expectations. Earnings season kicks into high gear this week. According to Reuters, 54 Standard & Poor’s 500 companies will report first-quarter earnings this week, compared to just 29 last week. Analysts have been scaling back earnings expectations slowly but steadily since the first of the year, and that’s one reason market have drifted for the past few months.

Employment numbers. Until then, we can bask the glow of some good employment numbers, at least, relatively speaking. First-time claims for unemployment dropped last week to a seven-year low of 300,000. The four-week rolling average fell to 316,000. Both of those numbers represent sustained job growth in the economy.

The week ahead. This week, earnings season hits its stride. Some of the jitters and drops of last week and the week before are because many analysts predicted valuations are a little frothy. If earnings are strong or even in line with expectations, the markets would likely calm.

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