Nasdaq nears 13-year high as tech stocks go from hated to loved

Technology stocks are back on Nasdaq. A four-day rally in the Nasdaq 100 Index has pulled the gauge within 0.1% of erasing a 7.5% sell-off from earlier this year 

Bloomberg

New York

Technology stocks are back. A four-day rally in the Nasdaq 100 Index has pulled the gauge within 0.1% of erasing a 7.5% sell-off from earlier this year. Exchange-traded funds that buy computer and software shares absorbed $1.1bn of fresh cash last week, more than any other industry tracked by Bloomberg. That’s a reversal from earlier in 2014 when investors were taking money out of the ETFs.

Google, Facebook and Apple are up more than 9% in the past month as investors shopped for larger companies with stable earnings and found bargains among shares that had fallen the most. While shares of EBay and Amazon.com have yet to recover, ETFs tracking the industry have done well, thanks to higher weightings of bigger stocks, according to Kevin Divney, chief investment officer at Beaconcrest Capital Management.

“Looking at the economy, one of the most compelling secular growth stories is technology and that’s not going to change,” Divney said in a phone interview last week from Boston. “As some of the high-flying tech companies with higher valuations were down 10 to 20% over the past six weeks, investors are going to start to see value.”

The PowerShares QQQ Trust, the biggest technology ETF, attracted almost $1bn last week, the largest deposit since March, data compiled by Bloomberg show. About $2.9bn was pulled out in April, the most since 2000.

Money has flowed away from stocks with higher valuations and into bigger companies with less volatility. Apple, the maker of iPhones and iPads, has jumped 19% since April 23 after posting a better-than-forecast quarterly profit and boosting its share buyback by $30bn.

Cisco Systems, the world’s largest networking-equipment maker, this month gave a forecast for fourth-quarter profit and sales that topped analysts’ estimates. The stock is up 6.9% in May. Google, which went public almost a decade ago, has seen its Class A shares rise 7.5% this month.

The rally prompted a resumption of money flows to computer shares. Before last week, technology ETFs lost $4.4bn in 2014, the most among 12 sectors, data compiled by Bloomberg show. In the previous year, the funds attracted more than $10bn, making them the most popular, the data show.

Facebook has climbed 10% in the past month and trades at more than 80 times earnings. The world’s largest social-networking site in April reported first-quarter profit and revenue that beat analysts’ estimates.

Technology shares need earnings to improve to sustain gains, according to James W Gaul, a portfolio manager at Boston Advisors, which oversees about $2.7bn from Boston.

Apple, Microsoft Corp and International Business Machines Corp are forecast to increase profit by 8.7% on average next year, data compiled by Bloomberg show. That compares with 12.3% for estimated growth in the overall industry.

“The general view on some of the old, larger tech names is that growth is slowing pretty substantially,” Gaul said by phone last week. “It’s going to be some of the smaller names that have more exciting products and actually have meaningful growth over the longer term.”

The recovery this month has been smaller for Internet stocks. Amazon.com, an online retailer trading at 505 times reported earnings, is up 2.2% in May. The stock is still down 22% for 2014. EBay has lost 0.1% this month.

The company is being probed by at least three states after the online marketplace revealed it was hit by a cyber-attack.

The Nasdaq 100 reached a 13-year high on March 5 and then fell through April for the first back-to-back monthly losses since 2012.

The gauge is up 3.9% this month. “It was a sector that just fell out of favour over the last couple of weeks and got probably cheap enough that it looked like, on a relative value, to be the place to put money,” Bill Schultz, who oversees $1.2bn as chief investment officer at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone on May 23. “It’s probably worth picking up some of the riskier plays here on the rebound chance.”

Nasdaq switches over to light-speed treasuries trading with Chicago link

Bloomberg

New York

Nasdaq OMX Group is revving the engine of its E Speed US Treasuries platform.

Bond dealers that use E Speed are gaining access to a microwave network connecting Nasdaq’s data centre near New York City to a CME Group facility just outside Chicago, permitting almost light-speed buying and selling of US debt.

Nasdaq will also acknowledge receipt of traders’ orders more than 25% faster, and the exchange operator will speed up delivery of market data by more than 100 microseconds, or 100 millionths of a second, according to a statement.

The decision to accelerate E Speed comes amid a debate, intensified by Michael Lewis’s critique of the US stock market in “Flash Boys,” over whether faster trading does harm.

A new research paper from VU University Amsterdam’s Albert Menkveld argues that when exchanges make their systems faster, they risk making it harder for most investors to get the best prices.

Nasdaq, which bought the bond-trading division last year, is targeting arbitragers seeking to profit off differences between Treasury prices on E Speed and prices for Treasury futures on CME Group’s Chicago-based market, said Joe Noviello, head of Nasdaq OMX E Speed.

“People have always been moving that toward the zero-latency profile,” he said during a phone interview.

The speed of light dictates how long - roughly 4,000 microseconds - it takes information to travel between Chicago and New York, the two major US trading centres. Trading firms seeking an edge on their competitors have for years tried to get closer to that limit, fuelling the creation between those two cities of Spread Networks’s fibre-optic line, which was documented in Lewis’s book.

Microwave towers are even faster than fibre lines, and last year Nasdaq and CME Group started beaming data between their data centres in Carteret, New Jersey, and Aurora, Illinois.

The network transmits data in less than 4,250 microseconds between those facilities.

While Nasdaq’s E Speed handles trading in Treasuries, CME Group specialises in futures on the debt. When prices diverge between those markets, an arbitrage opportunity is created. The faster E Speed customers learn of such price gaps, the faster they can attempt to profit off them.

Electronic trading of US Treasuries is nothing new, though the pace of buying and selling has accelerated in recent years. E Speed competitor BrokerTec, owned by ICAP Plc, said in a 2012 statement that it had reduced the average time it takes to execute a trade to less than 200 microseconds from 10,000 microseconds.

ICAP uses a version of Nasdaq’s software to run that system, it said at the time.

Nasdaq bought E Speed from BGC Partners in July for $750mn in cash plus as much as $484mn of stock.

E Speed, founded by Cantor Fitzgerald LP in 1996, is used by banks worldwide to trade bonds and currencies.

In the coming months, E Speed plans to add electronic trading of Treasury bills, off-the-run Treasury bonds and Treasury swaps, Noviello said yesterday. Merging the E Speed trading system into Nasdaq’s data centre in Carteret eases the introduction of new electronic contracts that have historically been traded by phone or in hybrid voice-electronic systems, he said.