Bloomberg News

U.S. Stocks Fall as Technology Shares Erase Early Rally

May 08, 2014

Most U.S. stocks fell, after the Standard & Poor’s 500 Index climbed to within two points of a closing record, as technology shares erased a rally to sell off for a third straight day.

Amazon.com Inc. and E*Trade Financial Corp. slid more than 1.5 percent to pace declines among Internet stocks. Tesla Motors Inc. dropped 11 percent after saying tight battery supplies will continue to restrain growth. Keurig Green Mountain Inc. and 21st Century Fox Inc. added at least 6.5 percent as earnings topped forecasts.

The Standard & Poor’s 500 Index fell 0.1 percent to 1,875.63 at 4 p.m. in New York, after an earlier advance of as much as 0.6 percent. The Dow Jones Industrial Average rose 32.43 points, or 0.2 percent, to 16,550.97, briefly trading above its all-time closing record reached last week. The Nasdaq Composite Index dropped 0.4 percent, reversing an earlier rally of 1 percent. The Russell 2000 Index of small companies slumped 1 percent. About 6.8 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“We continue to see this churning of the market and rotation out of hyper-growth names into value,” Walter Todd, who oversees about $975 million as chief investment officer at Greenwood Capital Associates LLC, said in a phone interview. “You see strength in the morning as people try to see if there’s going to be a breakout, and when that doesn’t occur, you see selling come in the afternoon.”

The Dow Jones Internet Composite Index lost 0.3 percent, erasing an earlier gain of 1.8 percent and adding to a 4.9 percent decline over the previous two days. Technology shares have led this year’s selloff of companies whose growth are more tied to economic swings after a rally drove valuations to about double that of the S&P 500.

Technology Shares

The Nasdaq Composite is trading at 34.3 times reported earnings, compared with a multiple of 17.2 for the broad equity measure.

Selloffs in technology shares this week have been led by two of the country’s best-known stocks, Twitter, which has declined 18 percent as insiders were freed to sell stock, and Tesla Motors, which is down 15 percent for the week. An exchange-traded fund of social-media companies fell on eight of the past 12 days amid concern that user growth is slowing and valuations have become excessive.

Tesla plunged 11 percent to $178.59 today, its biggest decline since November. The electric-car maker said research and development costs will rise 30 percent in the second quarter and battery-cell supply will continue to constrain production through the first half before improving in the third quarter.

‘Tough Times’

Amazon dropped for a third day, falling 1.5 percent to $288.32. E*Trade declined 2.1 percent to $21.23 for its third decline in the past four sessions.

Twitter climbed 4.2 percent to $31.96, while Groupon increased 6.1 percent to $5.66 after plunging 21 percent yesterday.

“There’s still some volatility ahead, and I’m still not trusting these tech stocks,” Chris Gaffney, senior market strategist at EverBank Financial in St. Louis, said in a phone interview. “Momentum stocks are still going to face some tough times going forward.”

The S&P 500 climbed yesterday as optimism that the Federal Reserve will continue to support the U.S. economy overshadowed the drop in Internet stocks. Chair Janet Yellen said in testimony to Congress that the central bank must continue to spur economic growth as indicators for inflation and employment remain far from the central bank’s goals.

Fiscal Stimulus

In response to questions from senators today, Yellen defended the Fed’s accommodative monetary policies and said the central bank had no intention of raising its 2 percent inflation goal.

The Federal Open Market Committee last week pared monthly asset buying to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely as the economy improves.

Jobless claims fell 26,000 to 319,000 in the week ended May 3 from a revised 345,000 in the prior period, the Labor Department reported today. The median forecast of 52 economists surveyed by Bloomberg called for a decrease to 325,000.

European Central Bank President Mario Draghi indicated that officials are ready to cut interest rates next month. Officials are debating how much stimulus to give to a euro region economy haunted by the threat of deflation.

While Draghi gave no signal that radical moves such as quantitative easing are imminent, new economic forecasts next month may give them the scope to take interest rates into negative territory.

‘Big Bet’

“It seems the market is making a big bet that the ECB is going to start a QE program pretty soon,” Matt Maley, a Boston-based equity strategist with Miller Tabak & Co., said in a phone interview.

Some 17 S&P 500-listed companies report earnings today. Of the more than 440 companies that have released results this season, 75 percent have beaten estimates for profit, while 53 percent have exceeded projections for revenue, data compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index (VIX), a gauge for U.S. stock volatility known as the VIX, gained 0.2 percent today to 13.43, reversing an earlier loss of 3.6 percent.

Utility and energy shares fell more than 1.2 percent for the biggest declines among 10 S&P 500 main industries. Transocean Ltd. slid 4.3 percent to $41.47, its biggest decline since February 2013, while Nabors Industries Ltd. fell 3.1 percent to $25.57. Phone companies had the best performance, rallying 1.5 percent.

DirecTV, Keurig

DirecTV dropped 3.6 percent to $85.11. AT&T Inc., the second-biggest U.S. mobile-phone carrier, is in talks to buy the satellite-television company, people with knowledge of the situation said. AT&T climbed 1.8 percent to $36.40.

Keurig added 13 percent to $104.19. The maker of home-brewing machines expanded its base of North American customers last quarter and sold more drink packs to current users, Chief Executive Officer Brian Kelley said in a statement. Total sales climbed 10 percent to $1.1 billion in the period.

21st Century Fox jumped 6.5 percent to $34.22 after posting third-quarter profit that beat analysts’ estimates after drawing the largest-ever audience to the Super Bowl.

SolarCity Corp. (SCTY:US) rallied 12 percent to $53.60. The biggest U.S. solar power provider by market value raised its installation forecast for the year after demand for its rooftop systems jumped 78 percent in the first quarter.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland


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