Bulls Battle Back, Jobless Claims Jump

Stock prices finished strongly higher Wednesday as investors moved cash back into the market, gathering up what were perceived to be bargains in the wake of Tuesday's sell-off. The narrow and broader blue-chip indices rose better than one and a quarter percent, while the NASDAQ composite pushed up one and three-fifths percent to move back slightly to the north side of the 2000-point mark.

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In general, the more volatile stock prices are, the greater the risk of investing in those kinds of securities.

  The heavy up-and-down see-saw of the market is making for more volatile than usual conditions, worrying some analysts, but cheering others who see more opportunities for gains both on upside and on downside movements. Although no single factor could explain yesterday's upward movement, the significant stock price movements might be no more than the norm for the markets right now, particularly if the volatility is indicating a market with more risk awaiting investors.

For a number of months, stock indices were stuck in a trading range, showing no trend either to higher or to lower levels. Beginning several weeks ago, however, a distinct trend downward began to emerge, evidenced well by the NASDAQ composite index finally making the passage to the underbelly of the 2000-point level, where it stayed until yesterday.

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Although stock price volatility indicates more investment risk, only the non-diversifiable component of that risk is associated with greater expected returns.

  Arguably, what might be occurring now is a new trading range with a somewhat lower average than the previous one, but with this one marked by more variation from day to day in overall movements of the indices and the actual stocks that form them. Index swings on the order of three-quarters of a percent or more from day to day would be an indication that considerable volatility has become the norm, a situation that allows sophisticated investors to form short-term positions to gather quick gains.

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"Going long" means buying stocks, betting that those stocks will go up in price. The opposite action is called "going short," which means forming short positions, betting that the stocks will fall in price.

  One result of this could be a self-fulfilling volatility: big investors going long to bet on one day's stock price rises could then sell off once they had hit a mark they wanted, but by closing their long positions, the sell-off knocks stock prices back down again. Played over and over again, this kind of trading pattern can make prices of individual stocks appear to have a see-saw, up-and-down behavior that is actually unrelated to underying, instrinsic value of the specific companies whose stocks are being traded in the strategy.

In other news, the Commerce Department this morning released the latest data on claims for first-time unemployment benefits, and the picture painted by the numbers was grim and wildly at odds with analysts' expectations. For the week ending March 26, first-time claims shot up to 350,000 from 330,000 in the week previous. Forecasters had predicted that claims would actually fall by 10,000 instead of rising by 20,000.

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"Discouraged workers" are people who would otherwise be counted as part of the labor force, but they are not because they no longer "actively seek" gainful employment.

  At the same time, the number of workers who were still living on unemployment benefits fell to its lowest level since the beginning of the Bush Administration. Although the White House is likely to spin that number to tout a healthy jobs market, it is far more likely that most of the people who have been on unemployment benefits for an extended period of time have either exhausted their benefits or otherwise left the job market. As a result of this possible rise in the number of so-called "discouraged workers," the unemployment rate could drop in the coming months, even though more people are out of work.