Service sector reports Contraction, Ignites Recession fears

Markets around North America tumbled Tuesday as an unexpected hit in the Services sector drove stocks to a large sell-off. The Dow, Nasdaq and S&P were all off about 3% while the Canadian TSX slid over 2.5%. Investors re-kindled recession fears on the news of a contracting indicator of service sector strength, and on that basis sold off stocks broadly.

The research metric for the service sector, which includes various business types, from retail to banking to dining, is measured by an index from the Institute for Supply Management. It read below 50, signifying a contraction. For the Bulls out there, contraction is a scary word in this scenario as it means No-Growth, and No-Growth is what sells off stocks these days.

The full effects of the Federal Reserve's rate cuts have not yet been seen in these metrics so economists are hopeful for a return to growth reading next month. Until then, the Recession word will be on more minds once again.

NYSE Euronext (NYX) was under immense selling pressure today, falling 14% on its quarterly earnings report. The exchange reported $0.59/share in earnings versus $0.29/share a year ago. These numbers including now the combination of Euronext's European trading operations were roughly in line with expectations. The company said its on track to secure more cost savings over the next 2 years as more synergies with Euronext are realized. This would equate to as much as $250Million by 2010. With full year profits for 2007 hitting over $600Million, you can see these cost savings will be significant drivers of profit growth in the future.

There is concern that NYX is losing share of its own market trading to Nasdaq and that it must drive deeply into the ever expanding, and more lucrative futures and options trading markets. Priority number 1 for the company these days is multi-faceted. It must stem the tide of market share loss, even though it is producing record trading volume levels of its own, while also looking for strategic investments. With Nymex (NMX) being the target of a Chicago Mercantile Exchange (CME) offer of $11Billion, the pressure is on for NYSE to look to consolidate more worldwide trading houses.

Disclosure: Author is long NYX

Market Musings Oct 24, S&P Changes add NYX, and Facebook news

The Markets came back strong to the close on Wednesday after being down fairly significantly mid-day. News of the struggling Housing sector and brokerage house Merrill Lynch (MER) writing down over $8Billion due to the Credit Crunch rattled investors and traders. A not so earth shattering outlook from high flier Amazon (AMZN) didn't help Technology stocks either.

The economic news on Existing Home Sales hurt stocks at the start as sales fell 8% year over year, which was worse than most economists had expected. Lots of talk about this "not yet being the bottom" led to further fears and thus more selling. Stocks seemed to bottom out however mid-day and recovered to be only flat or slightly lower. Technology was hurt by Amazon's perception of next quarter margins, which had investors heading for the profit taking fence.

NYSE Euronext (NYX) was up again today, hitting a recent high of $92, before settling at $90/share at the close, on news that it is about to be inserted into the S&P 500 and S&P 100 indices. This news was confirmed earlier in the week but today marked the last trading day before the company was to be officially recognized. Shares of NYX have rallied almost 9% since the announcement. The sheer number of money managers and funds that now have to own the company will likely continue to drive the shares higher going into its earnings report in early November. The stock is still off of its $112/share 52-week high but with a strong report and continued buying demand it may be sooner rather than later that the stock breaks into that territory.

Facebook, everybody's new favourite uber-growth social network, made more headlines today with a couple major announcements by big technology companies. Research In Motion (RIMM) announced a new application for its popular BlackBerry devices that ties in with Facebook, further promoting Rim's plans to nip at the heels of the consumer market segment. Microsoft (MSFT) threw its name into the social network hat as it agreed to purchase a 1.6% stake in Facebook for $240Million. The transaction gives Microsoft better leverage against its main Internet advertising competitors; Google (GOOG) and Yahoo (YHOO), and values Facebook at a lofty $15Billion.

Disclosure: Author is long NYX, GOOG