Bloomberg News

U.S. Stocks Drop for Week as Technology Selloff Overshadows Fed

May 10, 2014

U.S. stocks fell for the week, giving the Nasdaq Composite Index (CCMP) its worst decline in a month, as a technology and small-cap selloff overshadowed optimism the Federal Reserve will continue to support the economy.

The Dow Jones Industrial Average closed at a record, as equities rallied on the final day amid a rebound in computer shares. Groupon Inc. (GRPN:US) and Twitter Inc. (TWTR:US) sank at least 15 percent to pace the week’s declines among Internet stocks. Tesla Motors Inc. (TSLA:US) tumbled 14 percent after reporting car deliveries that trailed estimates. Whole Foods Market Inc. plunged the most in five years as profit growth stalled and the company cut its forecast.

The Nasdaq Composite dropped 1.3 percent for the five days. The Standard & Poor’s 500 Index (SPX) fell 0.1 percent to 1,878.48. The Russell 2000 Index of small companies retreated 1.9 percent to close below its average price for the past 200 days for the first time since 2012. The Dow rose 70.45 points, or 0.4 percent, to a record 16,583.34.

“The theme continues to be head for safety,” said Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., in a phone interview. “Names that are trading at reasonable valuations with decent fundamentals are where the money is going. Money is coming out of anything that’s growth related. It’s been a momentum snowball, continuing this week what we’ve seen for the last two months.”

Small-caps and Internet shares such as Facebook Inc. and Amazon.com Inc. have been the biggest victims of the market retreat that began two months ago as investors fled last year’s best-performing equities. The Dow Jones Internet Composite Index sank 3.6 percent for the week, touching the lowest level since October. The gauge has tumbled 18 percent from a 13-year high reached March 5.

Russell 2000

The Russell 2000 has fallen 8.4 percent from a March 4 record amid concern that prices have outrun earnings. Companies in the index trade at 61 times reported earnings, compared with a multiple of 17 for the S&P 500.

The S&P 500 and Dow fared better during the week, with the latter gauge advancing for four out the five days. Both measures rose May 7 as Fed 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.

Data in the latest week showed services, the biggest chunk of the U.S. economy, picked up in April while fewer Americans than forecast filed applications for unemployment benefits, a sign the labor market continues to gain traction.

Earnings Season

Investors also analyzed earnings for clues about the health of U.S. companies. Of the 453 S&P 500 constituents that have released results this season, 76 percent have beaten estimates for profit, while 53 percent have exceeded projections for revenue, data compiled by Bloomberg show. The index’s members increased their earnings by 5.5 percent and their sales by 3 percent in the first quarter, according to analysts surveyed by Bloomberg.

The Chicago Board Options Exchange Volatility Index rose 0.1 percent to 12.92. The measure is down 5.8 percent this year. Six out of 10 main industries in the S&P 500 declined for the week, with technology stocks posting the biggest loss at 0.7 percent.

Twitter sank a record 18 percent to $32.05. Chief Operating Officer Ali Rowghani and other executives sold shares of the microblogging service after a lock-up period for early shareholders expired this week.

Alibaba IPO

Groupon plunged 15 percent to $6.05. The company reached a one-year low on May 7 after the e-commerce retailer forecast second-quarter growth (GRPN:US) that trailed analysts’ estimates.

Yahoo! Inc. slumped 8.4 percent to $33.76 after Alibaba Group Holding Ltd., a Chinese online marketplace valued at $168 billion, filed for its U.S. initial public offering. Agreements between the two companies will force Yahoo to sell part of its 22.6 percent stake in Alibaba.

Among other Internet companies, Netflix Inc., E*Trade Financial Corp., Facebook, and Amazon each retreated more than 3.5 percent.

AOL Inc. sank 13 percent to $37.74 for the biggest decline since December 2012. The owner of the Huffington Post and TechCrunch reported earnings that missed analysts’ estimates as higher spending to attract an audience for advertisers squeezed its profit margin in the first quarter.

Tesla Motors

Tesla Motors slid (TSLA:US) 14 percent to $182.26. 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.

Whole Foods tumbled 21 percent to $39.32, the most since October 2008, as the natural-goods grocer cut its forecast amid increasing competition from traditional supermarkets and other organic-food sellers.

Keurig Green Mountain Inc. jumped 20 percent to $108.47 as second-quarter profit topped estimates. The maker of home-brewing machines expanded its base of North American customers last quarter and sold more drink packs to current users.

To contact the reporter on this story: Eric Lam in Toronto at elam87@bloomberg.net

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


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Companies Mentioned

  • GRPN
    (Groupon Inc)
    • $6.23 USD
    • -0.03
    • -0.48%
  • TWTR
    (Twitter Inc)
    • $37.65 USD
    • -0.40
    • -1.06%
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