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U.S. Stocks Rise as Technology Stocks Rally After Selloff

By Callie Bost and Corinne Gretler
April 08, 2014 4:39 PM EDT 72 Comments

U.S. stocks rose, with the Nasdaq 100 Index rebounding from its worst three-day drop since 2011, as technology shares from Google Inc. to Facebook Inc. rallied.

Yahoo! Inc., EBay Inc., Facebook and Google jumped more than 2.1 percent, after a technology selloff broadened yesterday to wipe out the year’s gains in the Standard & Poor’s 500 Index. Alcoa Inc. added 1.9 percent after the close of regular trading as it reported earnings that topped analyst forecasts.

The Nasdaq 100 climbed 0.9 percent at 4 p.m. in New York. The S&P 500 rose 0.4 percent to 1,851.96 and the Dow Jones Industrial Average added 10.27 points, or 0.1 percent, to 16,256.14. The Russell 2000 jumped 0.7 percent for its first gain in four days. About 7.1 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“Biotech and tech companies were trading at lofty valuations and they finally succumbed to the gravitational pull,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which oversees $63 billion in assets, said by phone. “A lot of these growth stocks had been taken down 10 to 20 percent, but usually that loss finds a bottom.”

The S&P 500 lost 1.1 percent yesterday, giving it a three-day drop of 2.4 percent, the most since January. The Nasdaq 100 gauge of mostly technology stocks fell 4.3 percent in the period, while the Russell 2000 Index of small companies sank 1.5 percent to a two-month low yesterday. Measures of biotechnology and Internet companies fell more than 15 percent from all-time highs.

Record Levels

The selloff came as valuations in technology stocks soared while the broader market touched all-time highs. The Nasdaq 100 surged 257 percent from its low in March 2009 through a 13-year high on March 5. That beat the 177 percent increase for the S&P 500 in the period. The S&P 500 closed at a record on April 2.

Investors have removed $1.3 billion from technology exchange-traded funds over the past five days, the biggest outflows of any sector in that period, according to data compiled by Bloomberg.

Amazon.com Inc. (AMZN), Whole Foods Market Inc. and Transocean Ltd. are among 43 companies that lost more than 20 percent from their 52-week high, data compiled by Bloomberg show. The average stock is down 9 percent from its most recent peak, according to Bespoke Investment Group LLC.

Since the start of March, gains in the U.S. market have been led by companies whose earnings are least tied to economic growth. Phone companies and utilities have risen more than 2.9 percent, while household products suppliers are up 1.9 percent. Technology and raw-material producers have fallen.

‘Overstretched’

Concern that the declines will worsen sent the Chicago Board Options Exchange Volatility Index for a 12 percent jump yesterday, the most since March 13. The gauge known as the VIX (VIX) measures the cost of S&P 500 options and moves in opposite direction to the stocks index about 80 percent of the time.

The VIX fell 4.4 percent to 14.89 today, for its first drop in four days.

“The hot markets simply got overstretched and it was probably time to correct,” Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, said by phone. “The bigger picture is the S&P 500 has been up five quarters in a row. We seem to be OK. There’s nothing wrong with a little sideways action.”

Alcoa climbed 1.9 percent to $12.77 as of 4:38 p.m. in New York. After the close of regular trading, the largest U.S. aluminum producer posted first-quarter earnings that surpassed analysts’ expectations as it benefited from a supply bottleneck at domestic metals warehouses.

Earnings Season

JPMorgan Chase & Co. and Wells Fargo & Co. are among S&P 500 companies reporting earnings this week.

Profit for members of the gauge probably climbed 1 percent in the first quarter, analysts now forecast, after anticipating a 6.6 percent rise in January. Sales rose 2.9 percent on average, according to analyst estimates compiled by Bloomberg.

Stronger U.S. growth this year and next will help the world economy withstand weaker recoveries in emerging markets including Brazil and Russia, the International Monetary Fund said in a report today. The IMF sees the U.S. accelerating to a 2.8 percent expansion this year and 3 percent in 2015, unchanged from forecasts in January. Gross domestic product in the U.S. increased 1.9 percent last year.

The U.S. is providing a “major impulse” to global growth that’s still lumbering amid weakness in Japan and parts of Europe, the IMF said.

Internet Stocks

Seven out of 10 major industries in the S&P 500 climbed today. Utilities, consumer and energy shares led advances with gains of more than 0.9 percent. Technology stocks rallied 0.9 percent.

The Nasdaq Internet Index jumped 2.6 percent, after tumbling 8.1 percent during the previous four sessions. Yahoo increased 2.3 percent to $33.83, after dropping 18 percent for the year through yesterday. Pandora Media Inc. surged 4.7 percent to $28.26, rebounding from the biggest four-day drop since August. TripAdvisor Inc. climbed 3.3 percent to $86.07.

Amazon.com rose 2.9 percent to $327.07. The world’s largest online retailer lost 22 percent since reaching a record in January, even as analysts’ estimates show earnings will triple this year. The shares have a price-earnings ratio of 579, data compiled by Bloomberg show.

Google Class A shares climbed 3.1 percent to $557.51 and Class C shares added 3.1 percent to $554.90. The stock in the largest search engine effectively split last week, and both classes declined over the previous two sessions.

Facebook increased 2.2 percent to $58.19, adding to a 0.4 percent gain yesterday. The stock, which doubled last year, lost 21 percent from its record last month.

EBay rallied 3.5 percent to $54.80, after slumping more than 1 percent during each of the past four sessions. The shares are still down more than 7 percent after reaching a record in March.

To contact the reporters on this story: Callie Bost in New York at cbost2@bloomberg.net; Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland

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