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U.S. Stocks Cap Biggest Drop in Two Weeks; Facebook Drops

By Lu Wang and Callie Bost
March 26, 2014 7:45 PM EDT 162 Comments
Trader Dennis Maguire, left, works on the floor of the New York Stock Exchange, on March 26, 2014.
Photographer: Richard Drew/AP Photo
Trader Dennis Maguire, left, works on the floor of the New York Stock Exchange, on March 26, 2014.

U.S. stocks fell, led by technology and commodity companies, after President Barack Obama warned the crisis in the Ukraine may escalate and Facebook Inc. dropped the most since 2012. Losses extended in the last hour as investors sold companies that have led the bull market.

Facebook sank 6.9 percent after buying virtual-reality headset maker Oculus VR Inc. King Digital Entertainment Plc (KING), the maker of the “Candy Crush” smartphone game, slumped 16 percent on the first day of trading. Citigroup Inc. lost 5.4 percent in extended trading after the Federal Reserve said the bank’s capital plan failed its stress tests.

The S&P 500 fell 0.7 percent to 1,852.56 at 4 p.m. in New York, the biggest drop since March 13. The Dow Jones Industrial Average lost 98.89 points, or 0.6 percent, to 16,268.99. The Nasdaq Composite Index retreated 1.4 percent. The Russell 2000 Index sank 1.9 percent, the most in almost two months.

“Investors around the world have been waiting to see what kind of reaction the United States and the EU would really take regarding Russia’s annexation of Crimea beyond sanctions,” Frederic Dickson, chief investment strategist who helps oversee $44.5 billion at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. “Any hints of escalation in terms of rhetoric or action would probably trigger investors to stand back and take recent profits.”

Drop Accelerates

Selling intensified in the last 60 minutes of trading, with gauges of technology stocks, drugmakers, and consumer and industrial companies all losing 0.7 percent. About half of the day’s 6.5 percent gain in the Chicago Board Options Exchange Volatility Index occurred during the period, data compiled by Bloomberg show.

Investors continued to sell riskier assets, as gauges of Internet and biotechnology shares sank. The S&P 500 closed at its session low, erasing nine points in the final hour of trading. Today’s drop trimmed the advance this year to 0.2 percent.

“It was probably a continuation of the past few days, with investors selling off some of the winners and high fliers,” Sean Sun, an equity research analyst at Santa Fe, New Mexico-based Thornburg Investment Management Inc., which oversees $94 billion, said by phone. “It definitely feels like the markets are more volatile recently than they have been.”

The Russell 2000, a gauge of smaller companies that has climbed more than 235 percent since the bull market began in 2009, slipped 1.9 percent today, extending its four-day slide to 3.6 percent.

Internet Stocks

The Nasdaq Internet index retreated 2.5 percent for a sixth day of losses and is down 11 percent since a high on March 6 amid concern that some social-media and web stocks may have been risen too far too fast. The iShares Nasdaq Biotechnology exchange-traded fund lost 1.8 percent to the lowest level since Jan. 9.

The Dow Jones Transportation Average, which reached a record on March 7, tumbled 1.6 percent today, the most in almost two months.

Obama, speaking in Brussels, warned of consequences of complacency in Ukraine and said Russia’s actions must be met with condemnation. Ukraine and the International Monetary Fund are nearing the end of bailout talks today as the U.S. and its European allies warned they’ll further penalize Russia if it intensifies the crisis after annexing Crimea.

Earlier gains in the S&P 500 followed economic data that showed the economy is expanding at a rate that investors speculated won’t spur faster interest rate increases.

Bond Purchases

Three rounds of bond purchases from the Fed have helped fuel economic growth, sending the S&P 500 up as much as 178 percent from its 2009 low. The rally has pushed the index’s price-earnings ratio to 17.2. While the multiple is near the highest level in four years, it’s close to the average since 1937, according to data compiled by Bloomberg and S&P.

Fed Bank of St. Louis President James Bullard said today policy makers haven’t committed to a specific month to end the bond purchases even as it would take a significant shift in the outlook to alter the path of tapering. Fed Chair Janet Yellen said on March 19 that the central bank’s stimulus program could end this fall and benchmark interest rates may rise about six months later.

American factories received fewer orders for machinery, communications gear and computers in February, signaling business investment is slowing after an unusually harsh winter put a damper on sales, data from the Commerce Department showed today. The S&P 500 rose 0.4 percent yesterday after data showed confidence among American consumers at a six-year high.

‘Mixed Picture’

“It’s been a mixed picture here, further complicated by severe weather,” Richard Golinski, chief investment officer of San Francisco-based Bingham, Osborn & Scarborough, said in a phone interview. The firm oversees $3.3 billion. “While the market is a little choppy this year, the general sense is that investors are still optimistic. Investors have developed a confidence that the Fed can come to rescue and the environment is relatively safe.”

Nine of the 10 main S&P 500 groups dropped. Raw-materials producers and technology shares fell the most, with each losing at least 1.3 percent.

The Nasdaq Composite Index dropped 1.4 percent today and has fallen 3.1 percent since Yellen’s remarks.

Facebook slid 6.9 percent to $60.39. The world’s largest social network said yesterday that it will spend $2 billion to buy Oculus, expanding into wearable hardware for the first time. Facebook shares rallied 158 percent in the past 12 months through yesterday.

Zynga, King

Zynga Inc., a developer of games for smartphones and tablets, dropped 4.1 percent to $4.64. The stock surged 33 percent in the first two months of this year.

King Digital tumbled 16 percent to $19. The company yesterday raised $500 million in its initial public offering, pricing the shares in the middle of the marketed range.

Peabody Energy Corp. fell 2.7 percent to $15.80. UBS AG cut coal stocks including Peabody to neutral from buy, saying it expects “more financial distress” in the industry over the next one or two years amid an oversupply.

Citigroup dropped 5.4 percent to $47.45 as of 4:45 p.m. in New York after ending the regular session lower by 0.3 percent. The lender was among five banks that failed Fed stress tests, while Goldman Sachs Group Inc. and Bank of America Corp. passed only after reducing their requests for buybacks and dividends.

Stress Tests

Citigroup, as well as U.S. units of Royal Bank of Scotland Group Plc, HSBC Holdings Plc and Banco Santander SA, failed because of qualitative concerns about their processes, the Fed said today in a statement. Zions Bancorporation was rejected as its capital fell below the minimum required. The central bank approved plans for 25 banks.

Health-care companies were the only group among 10 to advance in the S&P 500 today.

Laboratory Corporation of America Holdings climbed 4.2 percent to $98.64 while Quest Diagnostics Inc. increased 5.6 percent to $57.99. The companies will benefit after the House of Representatives last night released a bill that included an adjustment to clinical lab payment rates, Michael Cherny, an analyst with International Strategy & Investment Group LLC, said in a note.

DirecTV jumped 5.7 percent to $77.34. Dish Network Corp. Chairman Charlie Ergen recently contacted DirecTV Chief Executive Officer Mike White to discuss a merger of the two satellite television companies, according to several people with knowledge of the matter. Dish rose 8.5 percent to $63.38.

PVH Corp. rose 3.6 percent to $121.43. The maker of apparel and footwear said it earned $1.43 a share in the fourth quarter, higher than the $1.40 projected earlier.

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 editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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