By Eric Martin and Lynn Thomasson Oct. 27 (Bloomberg) -- U.S. stock-index futures are becoming less reliable as predictors of market moves. With equity investors around the world contending with the worst drop since the Great Depression, futures on the Standard & Poor’s 500 Index misstated gains or losses by an average 1.4 percentage point in October, twice the gap in the third quarter, data compiled by Bloomberg show. One of the biggest misses was Oct. 24, when futures fell as much as 60 points, while the index itself dropped 37 points in the first half hour of trading, before closing down 31. The pre-market readings may be adding to volatility during a month poised to be the worst in the 38-year history of MSCI Inc.’s index for developed countries, investors said. While fundamental concerns about the health of the global economy and solvency of banks are weighing on investors, the false cues are adding to uncertainty, said Arthur Cashin, director of floor operations for UBS Financial Services at the New York Stock Exchange. “It’s a state of permanent anxiety, because you don’t know where things are going to go,” said Cashin, a member of the NYSE for 44 years. “People are scrambling to try to stay up with it, so far unsuccessfully.” The MSCI World lost more than a quarter of its value this month as subprime-related credit losses topped $680 billion and global economic growth slowed. The S&P 500’s 40 percent loss in 2008 would be the most since 1931. December futures on the U.S. benchmark fell 1.4 percent today before trading began on the NYSE, more than double the index’s 0.6 percent decline at 10 a.m. in New York. European Signals With trading in U.S. stock-index futures running more than 23 hours a day on weekdays, their movement can affect sentiment around the world. Trading in Europe’s Dow Jones Stoxx 600 Index 15 minutes before the U.S. market opens has also been a poor indicator for how equities on the continent will end the day. In July, August and September, its move at that hour differed from the index’s close by less than 1 percentage point, according to data compiled by Bloomberg. The gap grew to 2.2 percentage points this month. While futures may be becoming a worse predictor amid unprecedented actions by central banks to bail out the financial system, pre-market trading is only an indication of what might happen, said John Carey, a Boston-based fund manager at Pioneer Investment Management, which oversees $300 billion. “They’re just people’s best idea on the market at a time when there are no actual trades,” he said. Loss to Gain This month’s biggest swing in S&P 500 futures was on Oct. 8, when a decline of 3.7 percent in the December contract became a 1.4 percent gain in the benchmark index by 10 a.m. after six central banks announced coordinated interest-rate cuts. The change, twice as large as any in the previous three months, gave way to a 1.1 percent decline at the close amid growing evidence the global economy is sliding into a recession. “There was a sense of panic,” said Frederic Dickson, who helps oversee about $20 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. “In the futures markets there are huge swings ahead of the opening. It looks like a casino for global traders.” The Chicago Board Options Exchange Volatility Index more than tripled in the past two months and last closed at 79.13, the highest in its 18-year history. The index measures the cost of using options as insurance against declines in the S&P 500. Rescue Rally Traders who leave their desks risk missing advances or drops. The Dow Jones Industrial Average tumbled more than 300 points in the hour after the U.S. House of Representatives rejected the $700 billion plan to rescue the financial system on Sept. 29. The S&P 500 finished the day with an 8.8 percent decline as U.S. stocks lost more than $1 trillion in market value. S&P 500 futures surged more than 3 percent on Oct. 12 as the U.S. government moved to buy stakes in financial companies and European central banks took steps to prevent lenders from collapsing. When U.S. exchanges opened the following day, the S&P 500 rallied the most in seven decades, adding 11 percent. “The stress is exhausting,” Cashin said. “You can’t afford to relax and take your eye off the ball for even a minute with the wild swings going on, lest you miss an opportunity or incur a major loss.” Trading has been interrupted on exchanges from Indonesia to Iceland over the past month in attempts to stem global declines. Russia’s RTS exchange and Micex Stock Exchange suspended trading on Oct. 24 after slumps of more than 10 percent triggered halts. “It’s a 24-hour watch,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. “I check the futures when I go to bed. I check them when I get up and sometimes I even get up and check them in the middle of the night.” To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Lynn Thomasson in New York at lthomasson@bloomberg.net

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