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U.S. Stocks Erase Gains as Technology Shares Lead Losses

By Lu Wang and Callie Bost
February 28, 2014 4:35 PM EST 205 Comments

U.S. stocks rose to a record, capping the best month since October, as improving consumer confidence and speculation that the Federal Reserve will support the economy offset concern over escalating conflict in Ukraine.

Principal Financial Group Inc. rose 1.6 percent after Keefe, Bruyette & Woods Inc. raised its rating on the stock. Monster Beverage Corp. advanced 4 percent after reporting sales that beat analysts’ estimates. Apple slid 0.3 percent as shareholders approved the company’s proposals and rejected those that the board opposed at its annual meeting. Deckers Outdoor Corp., the maker of Ugg boots, dropped 12 percent after forecasting an unexpected first-quarter loss.

The Standard & Poor’s 500 Index climbed 0.3 percent to 1,859.45 at 4 p.m. in New York, capping a 1.3 percent gain for the week that left the gauge 4.3 percent higher in February. The Dow Jones Industrial Average gained 49.06 points, or 0.3 percent, to 16,321.71. About 7.7 billion shares changed hands on U.S. exchanges, 19 percent higher than the 30-day average.

“We continue to be in an environment of recovery and modest growth, but not at a point of excessive strength that would cause a reversal in Federal Reserve policy when it came to raising interest rates,” James Abate, who oversees about $1 billion as chief investment officer at Centre Asset Management in New York, said by phone. “It’s positive for stocks.”

U.S. equities are set to enter the sixth year of a bull market that started March 9, 2009. Three rounds of stimulus have helped push the S&P 500 up 175 percent from a 12-year low.

Ukraine Tension

The index briefly erased gains in the afternoon after Ukrainian acting President Oleksandr Turchynov said Russia has invaded Ukraine’s southern region of Crimea as gunmen seized airports and other facilities on the peninsula.

Russian forces are trying to provoke a conflict similar to the 2008 war with Georgia over a breakaway region, Turchynov said today in a speech broadcast by the parliamentary television channel.

“Markets greet uncertainty with selling, especially entering a weekend,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said by phone. “Technically, the market is kind of overextended as well. It’s just an overbought situation. You’re having people take profits.”

Federal Reserve Chair Janet Yellen said yesterday that the central bank may consider changing its strategy for reducing asset purchases should the economy weaken. Earlier this month, she said that the economy can withstand stimulus cuts, adding that only a notable change to the outlook would prompt the central bank to slow the pace of tapering.

Fed Speak

Her latest comments helped the S&P 500 close at a record yesterday, ending three days of failing to sustain all-time highs throughout the trading session. The index closed up 1.3 percent this week, capping its third weekly gain this month.

“Although they don’t expect to change tapering, Yellen did give a nod to if the economic data tells us that over the next couple months it’s not just weather, then they will re-evaluate,” Andres Garcia-Amaya, global market strategist at JPMorgan Chase & Co.’s mutual funds unit in New York, said by phone. The firm oversees $400 billion. “The market took it on a stride and says, ‘All right, the Fed still supports us.’”

U.S. consumer confidence improved in February from a month earlier as more consumers grew optimistic about the outlook for the economy. The Thomson Reuters/University of Michigan final index of sentiment rose to 81.6 this month from 81.2 in January. The median estimate in a Bloomberg survey of economists called for the measure to hold at its preliminary reading of 81.2.

GDP Data

The economy in the U.S. grew at a slower pace in the fourth quarter than previously estimated, giving the expansion less momentum heading into 2014. Gross domestic product grew at a 2.4 percent annualized rate from October through December, compared with the 3.2 percent gain issued last month, revised figures from the Commerce Department showed. The median forecast of 85 economists surveyed by Bloomberg called for a 2.5 percent increase.

Investors are favoring smaller companies, with exchange-traded funds that hold small-cap stocks attracting almost $400 million yesterday, according to data compiled by Bloomberg. More than $530 million was withdrawn from large-cap ETFs and overall equity funds lost $36 million.

The Chicago Board Options Exchange Volatility Index slipped 0.3 percent today to 14. The gauge of S&P 500 options known as the VIX fell 4.6 percent this week.

Eight of 10 S&P 500 main industries gained. Consumer-staples and utilities stocks rose the most, climbing at least 0.6 percent. Kroger Co. jumped 4.5 percent to $41.94, the most in the S&P 500, and Archer-Daniels-Midland Co. increased 1.8 percent to $40.60.

Principal Financial

Principal Financial climbed 1.6 percent to $45.35. The life insurer was boosted to outperform from market perform at Keefe, Bruyette & Woods. Concern over the company’s business in emerging markets has been overdone, analyst Jeffrey Schuman wrote in a note to clients.

Monster Beverage surged 4 percent to $74. The distributor of energy drinks and fruit juices reported fourth-quarter sales of $540.8 million, beating the average analyst estimate of $526.3 million.

Jos. A. Bank Clothiers Inc. rose 3 percent to a record $62.08 as the retailer agreed to meet with Men’s Wearhouse Inc. to discuss a potential merger. Jos. A. Bank rejected a $1.78 billion bid from Men’s Wearhouse late yesterday because it failed to meet the interests of investors. The prospect of talks marks the latest twist in an almost five-month takeover battle between the two purveyors of discount suits.

Men’s Wearhouse climbed 6.7 percent to $53.79.

Apple Slips

Apple slipped 0.3 percent to $526.24 as shareholders showed support for Chief Executive Officer Tim Cook at its annual meeting. Apple recently faced down activist investor Carl Icahn, who had called on the company to increase its share buybacks.

Earlier this month, Icahn dropped a plan to force a vote over the issue, saying he was satisfied with statements by Cook that Apple had bought back $14 billion of its own shares in two weeks, bringing its repurchases to more than $40 billion in a year.

Deckers Outdoor dropped 12 percent to $74.35 after projecting a loss of 16 cents a share for the current quarter. Analysts had estimated a profit of 10 cents on average, according to data compiled by Bloomberg.

Salesforce.com, Southwestern

Southwestern Energy Co. fell 4.2 percent to $41.34 for the third-biggest decline in the S&P 500. The natural gas producer’s results from the Brown Dense holdings in the U.S. were disappointing, Tim Rezvan, an analyst with Sterne Agee & Leach Inc. in New York, wrote in a note to clients.

Salesforce.com Inc. slipped 5.8 percent to $62.37. The biggest maker of customer-management software forecast fiscal first-quarter earnings of 9 cents to 10 cents a share. Analysts, on average, estimated 10 cents.

KBR Inc. declined 14 percent to $27.62. The military contractor forecast earnings per share of $1.75 to $2.10 in 2014, less than the $2.49 that analysts had estimated. It also reported fourth-quarter revenue of $1.7 billion, missing the $1.93 billion average analyst projection.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

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

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