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A monitor is pictured as a trader works on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell Aug. 30. (Lucas Jackson/Reuters)
A monitor is pictured as a trader works on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell Aug. 30. (Lucas Jackson/Reuters)

EQUITIES

Dividend backlash intensifies in options market as S&P 500 slips Add to ...

More evidence the world is kicking its dividend addiction has surfaced in the options market.

Relative to the biggest S&P 500 index tracker, investors are paying close to the most in four years to protect against losses in the $16-billion (U.S.) iShares Select Dividend ETF, according to Bloomberg data.

The ETF, which has climbed 16 per cent in 2016, fell for the first time since January in August, losing 1 per cent. The S&P 500 dropped 0.2 per cent to 2,181.30 on Thursday.

Any evidence that investor ardour for defensive companies is waning should be viewed bullishly, according to Michael Antonelli of Robert W. Baird & Co.

This rotation can be seen with technology shares at a 16-year high, and the biggest energy ETF absorbing the most cash in 16 months.

“For the longest time, one of the most crowded trades was this dividend play, and you’re seeing some unwinding of that,” said Mr. Antonelli, an institutional equity sales trader and managing director at Robert W. Baird in Milwaukee. “That should be viewed as a good thing.

Sectors like tech are what you like to see lead if the market is going to make another leg up.”

The six-month implied volatility spread between the iShares dividend ETF and the SPDR S&P 500 ETF sits just half a point from a more than four-year high reached in May, according to data compiled by Bloomberg.

The two biggest components of dividend fund, which tracks the stock market’s highest-yielding companies, are Lockheed Martin Corp. and CME Group Inc.

While the iShares dividend ETF taken in more than $1-billion this year, the pace of inflows has slowed.

It’s absorbed just $17-million since the start of August, including $22-million of outflows over the past five trading days, Bloomberg data show.

Very little is working in the stock market right now. The S&P 500 has been stuck in an up-and-down range of 1.5 per cent for 43 days, the narrowest ever for such a period. The elite dividend group has lagged the benchmark gauge by a full percentage point over the period.

Stocks slip

U.S. stocks slipped from near-record levels Thursday after European Central Bank President Mario Draghi played down the need for more stimulus measures to bolster growth. Apple Inc. was the biggest drag, falling 2.6 per cent to $105.52 – the most in two months, a day after the introduction of its latest iPhone. Tractor Supply Co. tumbled 16.9 per cent to $69.38, the biggest drop in five years after cutting its profit outlook. Energy producers rallied for a fourth day of gains as the price of crude surged on an inventories report.

“The decision to not extend QE and some of Draghi’s other commentary is being taken as hawkish,” Mr. Antonelli said. “To leave policy unchanged was a little surprising. At the high end of this range, there’s no catalyst for a breakout, so we’re selling on this news.”

The S&P 500 has hovered near a record since mid-August amid mixed economic data and speculation about Federal Reserve interest-rate policy. The stock market has been one of the calmest ever as traders pushed back bets for a September hike to 26 per cent, from as high as 42 per cent in late August. December is the first month with at least even odds of a raise.

A report Thursday showed filings for unemployment benefits dropped to the lowest level in seven weeks, showing employers have little appetite to lay off workers. On Wednesday, the Fed’s Beige Book survey of regional conditions indicated the U.S. economy grew at a modest pace in July and August. That followed recent weaker-than-expected gauges on services-sector activity, manufacturing and hiring.

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