The Nasdaq Composite Index (CCMP) tumbled the most in two weeks amid concern earnings growth is too slow to justify U.S. equity valuations. Emerging-market stocks slumped and Treasuries climbed as tension increased over Russia.
The Nasdaq Composite retreated 1.8 percent at 4 p.m. in New York as Amazon.com Inc. slid the most since January. The Standard & Poor’s 500 Index dropped 0.8 percent, erasing a gain for the week, while the yield on 30-year Treasuries reached the lowest level in nine months. The MSCI Emerging Markets Index lost 1.2 percent. Russia’s Micex Index fell a fifth day and the ruble weakened 0.6 percent versus the dollar. The Stoxx Europe 600 Index declined 0.8 percent. Oil dropped 1.3 percent and the yen strengthened against all 16 major peers.
Amazon.com dropped 9.9 percent, the most in the S&P 500, after predicting an operating loss in the current quarter. The Group of Seven nations are preparing new measures against Russia, German Chancellor Angela Merkel said, after the U.S. accused Russia of trying to impose its will at “the barrel of a gun and force of a mob.” S&P cut Russia to its lowest investment grade, saying further downgrades are possible.
“The great earnings surprises from some of the big tech stocks haven’t quite been enough to bring down the wall of worry,” Tom Stringfellow, president and chief investment officer of San Antonio-based Frost Investment Advisors LLC, which manages about $10 billion, said by phone. “Russian troops are massing up at the Ukrainian border, which is enough to make people nervous about anybody with business activities in Europe. We’ve become sensitive to having too many days of gains, and eventually there has to be a move down.”
While Amazon’s earnings and concern about Russia’s involvement in Ukraine were the most immediate catalyst, today’s decline shared characteristics of other selloffs in the U.S. equity market over the past month.
Losses were heaviest in technology companies that have posted the biggest gains of the five-year bull market. Facebook Inc., which doubled in 2013, and Netflix Inc., which almost quadrupled, slid more than 5 percent. The Nasdaq 100 Index dropped twice as much as the S&P 500, repeating a pattern of bigger losses that has occurred almost every time U.S. equities have fallen this month.
Components in the technology-heavy Nasdaq Composite trade for 34.5 times reported earnings, double the valuation of members in the S&P 500.
The S&P 500 had advanced 0.7 percent in the previous four days, following its best week since July, as companies such as Apple Inc. reported earnings that beat estimates, increasing optimism about the strength of the world’s largest economy. The equities benchmark earlier this week rallied to within six points of its all-time high before retreating.
Some 15 S&P 500 members reported earnings today. Of the 239 companies that have released results this season, 75 percent have exceeded analysts’ profit estimates, while 53 percent have beaten sales projections, data compiled by Bloomberg show.
Analysts predict the benchmark’s constituents will collectively report a 3.4 percent increase in first-quarter profit and a 2.8 percent gain in revenue.
Amazon.com tumbled 9.9 percent to the lowest level since October. Visa dropped 5 percent after the world’s biggest bank-card network reported that quarterly revenue missed (V:US) analysts’ estimates. Ford Motor Co. fell 3.3 percent. The second-largest U.S. automaker, beset by higher warranty costs and bad weather, reported first-quarter net income dropped 39 percent to less than analysts’ estimated.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX (VIX), added 5.6 percent to 14.06. The gauge is up 2.5 percent for the year.
Data released today showed an increase in consumer confidence. The Thomson Reuters/University of Michigan final April index of sentiment rose to 84.1 from 80 a month earlier. The median estimate in a Bloomberg survey of 63 economists called for 83 after a preliminary April reading of 82.6.
The MSCI Emerging Markets Index fell 1.9 percent this week, the most in more than a month, amid concern China’s economic slowdown will hurt earnings and as violence in Ukraine worsened. The Shanghai Composite Index slid 1 percent today, extending this week’s decline to 2.9 percent, the worst in three months. Gauges in South Korea and Taiwan dropped at least 1.3 percent.
The Micex fell 1.6 percent, extending a five-day decline to 5.6 percent, the worst week in six.
“The tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” S&P said in the statement, cutting Russia to BBB-, with a negative outlook.
Ruble bonds due February 2027 retreated for a fifth day, sending the yield to a six-week high of 9.64 percent. The central bank increased its one-week auction rate to 7.5 percent from 7 percent today.
“The level of tension between the U.S. and Russia is obviously fueling concern among investors,” said Kazuhiko Saito, a Tokyo-based analyst at commodities broker Fujitomi Co. “Even though we may see some technical retreat after a strong rally, the trend is likely to continue as the situation isn’t going to resolve itself anytime soon.”
The Treasury 30-year bond yield fell one basis point to 3.45 percent. The yield reached the lowest level since July 3 and has fallen from this year’s high of 3.97 percent in January. The rate on 10-year notes slipped two basis points to 2.67 percent, taking this week’s decline to six basis points.
A rally in 30-year Treasuries has pushed returns to the best start to a year in at least two and a half decades. The securities climbed 10.3 percent from Dec. 31 through yesterday, the most for the period based on Bank of America Merrill Lynch data that go back to 1988.
The yen rose to the highest level in a week against the dollar. It strengthened 0.2 percent to 102.16 per dollar, and appreciated 0.2 percent to 141.30 per euro. The U.S. currency was unchanged at $1.3831 per euro.
The decline in the Stoxx 600 pared this week’s increase to 0.3 percent. The gauge is 1.7 percent away from its six-year high reached April 4, with the volume of shares changing hands today 29 percent lower than the 30-day average, according to data compiled by Bloomberg.
Renault SA lost 2.3 percent after Europe’s third-largest automaker reported a decline in first-quarter sales. Earnings that trailed estimates sent Royal KPN NV, the biggest Dutch phone company, down 1.9 percent. Electrolux AB (ELUXB) rallied 11 percent after the world’s second-largest maker of home appliances posted better-than-estimated earnings and increased its forecast for demand growth in Europe.
WTI crude dropped 1.3 percent to $100.60 a barrel, the lowest level in two weeks, as equities tumbled and stockpiles expanded to an 83-year high in the U.S., the biggest oil consumer.
Gold futures rose 0.8 percent to $1,300.80, rising for a third straight day to cap the longest rally in six weeks.
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