The immediate reaction in the futures market to the January unemployment report could only be described as confounding.
Within seconds of the report's release at 8:30 a.m. EST Friday, the S&P 500 e-mini futures promptly rose from 1,774 to 1,786, then dropped to 1,760. That represents a 1.5 percent market move, high to low, made in about 10 seconds.
Just as striking as the speed and size of the move was the volume. In the first three seconds at 8:30 a.m., $1 billion in e-mini futures were traded, according to market technology firm Nanex.
"The S&P moved in 10 seconds what it normally takes a whole day to move," commented Nanex founder Eric Hunsader. "And it wasn't just in one direction."
If the market was confused, perhaps it had good reason to be. While nonfarm payrolls increased by just 113,000 in January according to the Bureau of Labor Statistics report, the unemployment rate slid to 6.6 percent.
"Clearly there are some major algos playing the release of the number, and a few of them are digesting the actual unemployment rate and new jobs created very differently, making it a scary illiquid market during that first minute," said Brian Stutland of the Stutland Volatility Group.
For Hunsader, the main problem was the lack of liquidity in the market at the time of the market-moving event.
"We had practically zero—the lowest liquidity I've ever seen going into it," Hunsader said. "In past years, you've seen fewer and fewer orders sitting on the book, but this time nothing. So when the news got released it didn't take a whole lot to move it."
And as the moves on the news get bigger and bigger, traders have a larger incentive to "stay on the timelines and wait for it to settle out" when major news is released, exacerbating the liquidity problem over time.
"Experienced people try to stay away from the NFP for the most part," said Chris Ciovacco, CEO of Atlanta-based Ciovacco Capital Management, referring to the nonfarm payroll figure. "It's not unusual for traders to say, I want to come into this report flat. Meanwhile, if you're an investor, you try to just look away."
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Jim Iuorio of TJM Institutional Services offered that "maybe there were people who were inclined to buy on any sign of good news, and the 6.6 percent seemed good enough to press buy."
Iuorio added, however, that "it's a mistake to try to attach logic to post-number noise."
CME Group, which owns the Chicago Mercantile Exchange on which the S&P e-mini is traded, declined to comment.