Concern earnings growth is too slow to justify U.S. equity valuations sent the Nasdaq Composite Index to its biggest decline in two weeks.
Amazon.com Inc. dropped 9.9 percent after predicting an operating loss in the current quarter, contributing to a 1.8 percent decline in the Nasdaq Composite. Broadcom Corp. lost 4.4 percent to pace declines among technology shares. Visa sank the most since July after revenue missed analyst targets. Ford Motor Co. slipped 3.3 percent after posting earnings that trailed analysts’ estimates.
The Standard & Poor’s 500 Index (SPX) dropped 0.8 percent to 1,863.40 at 4 p.m. in New York, leaving it down 0.1 percent for the week. The Dow Jones Industrial Average decreased 140.19 points, or 0.8 percent, to 16,361.46. Visa is the biggest member of the Dow. The Russell 2000 Index of smaller companies sank 1.9 percent, erasing gains for the week. About 6.3 billion shares changed hands on U.S. exchanges, 12 percent below the three-month average.
“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. (FB:US), which doubled (FB:US) 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 Nasdaq Composite trade for 34.5 times reported earnings, double the valuation of members in the S&P 500.
The equities benchmark 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.
The Thomson Reuters/University of Michigan final April index of sentiment rose to 84.1 from 80 a month earlier, topping the median estimate of 83 in a Bloomberg survey of 63 economists. The index averaged 89 in the five years before December 2007, when the last recession began.
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.
Eight of the 10 main S&P 500 industries retreated, Consumer-discretionary shares dropped 1.7 percent to pace losses as Amazon sank. Utility shares advanced 1.1 percent.
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.
The Morgan Stanley Cyclical Index sank 1.5 percent, halting an eight-day rally that drove it to a record. The Dow Jones Transportation Index lost 1.6 percent for a second day of declines after reaching an all-time high on April 23.
Amazon dropped 9.9 percent to $303.83, the lowest since October. The world’s largest online retailer is pouring cash into expanding Amazon’s business at the expense of profits. The company is building more warehouses to speed shipments, while adding new services like a grocery-delivery program and a TV set-top box for streaming movies and TV shows to compete with Apple Inc. and Netflix Inc.
Broadcom decreased 4.4 percent to $29.76, the most since July. The maker of communications chips had its rating downgraded to hold from buy at Needham & Co.
Visa slid 5 percent to $198.93. The world’s biggest bank-card network posted revenue below estimates and Chief Executive Officer Charlie Scharf said a strengthening U.S. dollar will continue to weigh on earnings growth in the next quarter.
Ford slipped 3.3 percent to $15.78. The second-largest U.S. automaker was beset by higher warranty costs and bad weather during the quarter. The company is rolling out 23 new models worldwide this year and a record 16 in North America.
Masco Corp. (MAS:US) plunged 7.4 percent to $20.78 for the second-biggest decline in the S&P 500. The company, one of the largest U.S. installers of home insulation, reported first-quarter earnings that missed analyst estimates (MAS:US) by the most since the fourth quarter of 2011.
Pandora Media Inc. lost 17 percent to $23.51, the lowest since September. The company forecast profit that trailed estimates for the current quarter after saying it will spend aggressively on marketing to maintain its lead in online-radio services.
Newmont Mining Corp. added 3.8 percent to $26.45. The miner, which is said to have held merger talks this month with Barrick Gold Corp., reported first-quarter earnings that beat analysts’ estimates. Newmont’s average cost was $751 an ounce, compared with $760 a year earlier.
Mylan Inc. rose 3.5 percent to $52.10. The biggest U.S. maker of generic medicines raised its offer for Swedish drugmaker Meda AB to about 43.8 billion Swedish kronor ($6.7 billion), people with knowledge of the matter said.
Investors turned attention to geopolitical developments today after U.S. Secretary of State John Kerry late last night warned Russia President Vladimir Putin he’s running out of time to ease tension in Ukraine. Kerry said it will be “an expensive mistake” if Putin does not meet commitments made at a meeting in Geneva a week ago. Russia yesterday began new military exercises on Ukraine’s border.
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.” The Russian central bank unexpectedly increased a key interest rates today after S&P downgraded the country’s credit rating. Russia’s benchmark equities index fell a fifth day.
“The situation in Ukraine seems to be getting more tense, making investors nervous,” said Jacques Porta, who helps oversee $780 million at Ofi Gestion Privee in Paris. “A war would be a disaster for everybody.
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