Stocks decline as technology, consumer shares extend slide

NEW YORK – U.S. stocks fell, after the biggest drop for the Nasdaq 100 Index in two years, as technology and consumer companies extended last week’s slide before the start of corporate earnings season.

Yahoo! Inc. and Apple Inc. lost more than 1.4 percent to pace declines in technology shares. TripAdvisor Inc. tumbled 5.3 percent to lead a retreat among consumer companies.

The Standard & Poor’s 500 Index dropped 0.9 percent to 1,849.21 at 12:59 p.m. in New York, briefly erasing its gains for the year. The Dow Jones Industrial Average slipped 112.89 points, or 0.7 percent, to 16,299.82. The Nasdaq 100 gauge of the biggest technology stocks fell 0.8 percent, after tumbling 2.7 percent on April 4. The Russell 2000 Index of small companies sank 1.3 percent to an almost two-month low.

“It’s a carryover from Friday’s selloff,” said Wes Mills, chief investment officer with Scotia Private Client Group in Toronto. His firm manages about C$14 billion. “It’s a risk-off move. Markets had risen to the point where people are a little skittish and locking in profits ahead of the earnings season.”

- Advertisement -

The S&P 500 rose to a record last week before trimming its weekly gain to 0.4 percent in the last two days, as the selloff in technology shares overshadowed optimism on Federal Reserve monetary stimulus.

Technology shares were hit as traders dumped the biggest winners of the bull market amid concern valuations have advanced too far. The Nasdaq 100 fell the most in two years on April 4 with declines in all but four stocks. The gauge sank 0.9 percent for the week after surging 35 percent in 2013.

Valuations, ETFs

The Nasdaq Composite Index, which slid the most in two months on April 4, dropped 1.1 percent today. It trades at 31.5 times reported earnings of the companies in the index. That’s almost twice the ratio for the S&P 500, which trades at 17 times earnings.

The selling in the Nasdaq 100 Index has sent anxiety among options traders to the highest levels since the flash crash four years ago. More than 1 million put options on an exchange-traded fund tracking the Nasdaq index changed hands on April 4 as investors sought protection during a 2.7 percent drop in the gauge. That’s the most trading in bearish contracts since May 7, 2010, the day after $862 billion was erased from the value of U.S. stocks in a matter of minutes.

Hedge funds that invested heavily in technology shares took a beating in the first quarter as popular holdings such as Chinese Internet company Baidu Inc. fell 14 percent and online retailer Amazon.com Inc. tumbled 15 percent.

Hedge Funds

Paul Tudor Jones, Michael Novogratz and Louis Bacon, hedge-fund managers that profited last year from bets on macroeconomic trends, posted losses in the period as some of those trades turned against them. The losses for macro managers have caused them to cut some of their bigger bets, Anthony Lawler, a money manager at he $120 billion Swiss firm GAM, wrote in a report last week.

The Chicago Board Options Exchange NDX Volatility Index, tracking contracts on the Nasdaq 100, gained 7.7 percent to 20.24 today. The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, rose 11 percent to 15.54.

The Morgan Stanley Cyclical Index tumbled 1.5 percent and the Dow Jones Transportation Index slid 1.3 percent. An S&P gauge of homebuilders slipped 2.2 percent, as D.R. Horton Inc. lost 2.8 percent to $21.69 and KB Home erased 3.6 percent to $16.94.

Consumer discretionary shares dropped 1.8 percent, the most among the 10 main S&P 500 groups, after sliding 1.7 percent on April 4. The industry has lost 5.8 percent since a record close on March 6.

Retailers drop

Retailers in the S&P 500 have slipped 7.8 percent this year after soaring 44 percent in 2013. The S&P 500 Retailing Index trades at 24.6 times earnings, more than seven points higher than the ratio for the benchmark gauge.

TripAdvisor, which climbed 98 percent last year, dropped 5.3 percent to $81.12 for the largest decrease in the S&P 500 today. Priceline Group Inc. lost 1.7 percent to $1,158.19, after adding 87 percent in 2013.

Amazon.com, which trades at 567 times reported earnings, fell 1.9 percent to $316.78. Best Buy Co., the company with the third-largest gain in the S&P 500 last year at 237 percent, slipped 1.8 percent to $27.19 today, extending losses for 2014 to 32 percent.

Financial stocks declined 1.3 percent as all 24 members of the KBW Bank Index fell. MetLife Inc. tumbled 2.9 percent to $51.32 and Morgan Stanley slid 2.8 percent to $29.53.

Visa Inc. decreased 2.2 percent to $203.12 and American Express Corp. retreated 2.1 percent to $87.34, pacing losses in the Dow.

Technology shares

Technology shares fell 0.8 percent, with Yahoo! Inc. dropping 3.2 percent to $33.18 and Apple Inc. sliding 1.4 percent to $524.17.

The group saw the second-biggest outflows among industry exchange-traded funds in the past five days, losing $173.4 million, while investors withdrew $223 million from real-estate ETFs over the past week.

Mark Mobius, who oversees about $50 billion at Templeton Emerging Markets Group, said he’s buying technology stocks after a global rout left companies such as Tencent Holdings Ltd. trading at “reasonable” valuations.

“If you look at Tencent for example, it’s come down about 20 percent and that’s a pretty good correction,” Mobius, whose Templeton Asian Growth Fund outperformed 88 percent of peers this year, said in an interview in Bloomberg’s Hong Kong office, declining to name specific stocks he’s buying.

Biotechnology index

The Nasdaq Biotechnology Index rose 0.2 percent today, after tumbling 18 percent from a record high reached in February. The gauge has fallen six straight weeks, the longest streak since 1998, after rising 79 percent in the year through Feb. 28.

Alcoa Inc., the largest U.S. aluminum producer, unofficially kicks off the U.S. quarterly earnings season when it releases financial results after the close of trading tomorrow. JPMorgan Chase & Co. and Wells Fargo & Co. are also among the S&P 500-listed companies reporting this week.

Profit for members of the gauge probably climbed 1 percent in the period, analysts now forecast, after anticipating a 6.6 percent rise in January. Sales rose 2.9 percent on average, according to estimates compiled by Bloomberg. Analysts bet industrial companies will continue to deliver the fastest profit growth amid a weather-related slowdown.

Earnings season

“It will be an interesting few weeks with the earnings season kicking off tomorrow,” Heinz-Gerd Sonnenschein, an equity market strategist at Deutsche Postbank AG, said by phone from Bonn, Germany. “Everybody expects a weaker quarter given the headwinds that corporates faced earlier this year. The U.S. market is still strong, not far from a record, but we really need more profit growth to support valuations.”

Data last week boosted optimism that the economy is shaking off its winter doldrums and building momentum into the second quarter. Growth in manufacturing accelerated in March, driven by gains in production and orders. The government’s jobs report showed employers boosted payrolls last month and the unemployment rate held at 6.7 percent.

The S&P 500 closed at all-time highs on April 1 and 2, after Fed Chair Janet Yellen signaled continued monetary support. Three rounds of bond purchases from the Federal Reserve have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.

No posts to display