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U.S. Stocks Fall as Technology Selloff Drops Nasdaq Index

By Joseph Ciolli and Lu Wang
April 04, 2014 4:33 PM EDT 58 Comments
Traders work on the floor of the New York Stock Exchange.
Photographer: Jin Lee/Bloomberg
Traders work on the floor of the New York Stock Exchange.

U.S. stocks fell, with the Nasdaq Composite Index sliding the most in two months, after large technology stocks from Google Inc. to Yahoo Inc. plunged as investors sold the bull market’s biggest winners.

Google Class A shares sank 4.6 percent in the biggest drop since October 2012. Facebook Inc. lost 4.6 percent, bringing its two-day slide to 9.5 percent. Yahoo Inc. declined 4.2 percent to the lowest since November. An index of biotechnology stocks plunged 4.1 percent. GrubHub Inc. surged 31 percent in its trading debut.

The Nasdaq index lost 2.6 percent to 4,127.73 at 4 p.m. in New York, for its worst day since Feb. 3. The Standard & Poor’s 500 Index sank 1.3 percent to 1,865.09 after earlier rising to an all-time high. The Dow Jones Industrial Average dropped 159.84 points, or 1 percent, to 16,412.71.

“This has been in the making for a few weeks,” Rick Fier, director of equity trading at Conifer Securities LLC in New York, said a phone interview. “Managers were positioned very heavily last year with the winners. They killed in 2013 and money started to pour in them. Today is kind of like the panic day that they couldn’t stand it any more and now they’re just puking these names.”

The Nasdaq index fell 0.7 percent in the past five days after losing 2.8 percent last week. The gauge is down 1.2 percent in 2014. It rose 38 percent last year. Equities had climbed to records earlier today after on a government report showing employers added to payrolls last month.

Isolated lurches in the Nasdaq 100 Index have become more common in the last two months as investors reassessed equities that have posted annual gains of 25 percent since 2009. The gauge twice tumbled more than 1.8 percent over two-day stretches last week and lost 2.1 percent on March 13 and 14.

Biotechnology Index

All but nine of the 121 stocks in the Nasdaq Biotechnology Index dropped, led by a 27 percent slide in Halozyme Therapeutics Inc. The gauge plunged 7 percent last week after rallying 79 percent in the 12 months through Feb. 28.

Netflix Inc. sank 4.9 percent to $337.31 for a third straight decline. The stock nearly quadrupled in 2013 after jumping 34 percent in the previous year.

Facebook, which doubled last year, lost 4.6 percent to $56.75, the lowest since January.

Google Class A shares slid 4.6 percent to $545.25, the lowest since Dec. 19 on a split-adjusted basis.

Yahoo dropped 4.2 percent to $34.26, the lowest since Nov. 12.

Little Nervousness

“There’s a little bit of nervousness about some of the high multiples in the biotech area and computer and Internet-related stocks,” John Carey, a fund manager at Pioneer Investment Management Inc., a Boston-based firm that manages about $220 billion worldwide, said in a phone interview. “You’re having another wave of selling in that very high-momentum group.”

The S&P 500 climbed 0.4 percent in the past five days and closed at records on April 1 and 2 after retreating 0.5 percent last week. The gauge trades at 17.3 times reported earnings, the highest level since 2010 and 11 percent above its five-year average, according to data compiled by Bloomberg.

“When you’re at record high levels, people start to get a little tentative going into weekends,” Randy Frederick, managing director of trading and derivatives at Charles Schwab Corp. which manages $2.2 trillion in client assets, said in a phone interview. “Taking a few profits off the table going into the weekend is probably not a bad strategy.”

Volatility Index

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as VIX, rose 4.4 percent to 13.96, trimming its decline this week to 3.1 percent. About 7.6 billion shares changed hands on U.S. exchanges, 10 percent more than the three-month average.

Equities earlier rose to all-time highs after data showed employers in the U.S. boosted payrolls and the unemployment rate held at 6.7 percent even as more Americans entered the labor force. Payrolls rose 192,000, short of the median forecast in a Bloomberg survey of economists for a 200,000 gain.

Employment in January and February was revised higher, showing the effect on the labor market from inclement winter weather was less severe than previously thought.

Investors have been scrutinizing data to determine whether the world’s largest economy has begun to emerge from a weather-related setback in the first part of the year. Freezing temperatures and mountains of snow kept shoppers indoors, grounded flights and made it harder for shippers to fill product orders.

Jobs Report

“We like this number because it is not too high,” David Roda, the Miami-based regional chief investment officer for Wells Fargo Private Bank, said in a phone interview. His firm manages $170 billion. “If this number were too big and unemployment was declining faster than expected, we would have anticipated faster Fed moves, partially in short-term rates.”

The Fed uses the jobs report to help determine the timing and pace of further cuts to its monthly bond-buying program. The central bank also looks to the unemployment rate as a factor in deciding when to raise its benchmark interest rate.

Fed Chair Janet Yellen said this week that “considerable slack” in the labor market is evidence that the central bank’s unprecedented accommodation will be needed for “some time” to put Americans back to work.

Pacific Investment Management Co.’s Bill Gross said the pace of employment growth in the U.S. means the Fed will continue to wind down bond purchases and then consider raising

Gross Assessment

The Fed’s quantitative easing should “end at the end of October or November,” said Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Michael McKee. “Then, as Janet Yellen has suggested, six months plus or minus, we can begin to talk about higher policy rates.”

Data this week showed that jobless claims rose more than forecast last week while a private payrolls report indicated hiring fell short of estimates last month.

Fed stimulus has helped boost the S&P 500 by as much as 180 percent since the bull market began in March 2009.

GrubHub rallied 31 percent to $34. The company, which runs websites including Seamless.com and Menupages.com, surged in its trading debut after raising a higher-than-expected $192 million in an initial public offering.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

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

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