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U.S. Stocks Retreat as Ukraine Tensions Overshadow Jobs

By Lu Wang and Joseph Ciolli
May 02, 2014 4:35 PM EDT 48 Comments

U.S. stocks fell, after an earlier rally sent the Standard & Poor’s 500 Index above its closing record, as concern about escalating tension in Ukraine overshadowed data showing payrolls rose the most in two years.

Health-care stocks dropped 0.8 percent, as Merck & Co., Pfizer Inc. and Johnson & Johnson lost more than 1.2 percent. LinkedIn (LNKD) Corp. declined 8.4 percent after giving a quarterly sales forecast that missed analysts’ estimates. Casino stocks rallied as Macau revenue topped forecasts.

The S&P 500 slipped 0.1 percent to 1,881.14 at 4 p.m. in New York, after rallying 0.4 percent earlier to climb above all-time high of April 2. The Dow Jones Industrial Average lost 45.98 points, or 0.3 percent, to 16,512.89. About 5.9 billion shares changed hands on U.S. exchanges, 12 percent below the three-month average.

“The end result is neutral but it’s the positive of the jobs numbers being offset by greater concerns about what’s going on in the Ukraine,” said John Manley, chief equity strategist at Wells Fargo Funds Management in New York, which advises $231 billion in the Wells Fargo Advantage Funds. “There’s more activity over there and that has the market a little bit worried. It’s something we will have to deal with for a while because I don’t see it going away right away.”

The United Nations Security Council held an emergency meeting on Ukraine today after the country sent armored vehicles and artillery to retake Slovyansk, defying a demand by Russian President Vladimir Putin to pull back troops. President Barack Obama and German Chancellor Angela Merkel set a May 25 trigger for possible economic sanctions against Russia.

Ukraine Crisis

Interior Ministry forces were dispatched at 4:30 a.m. local time to drive out militants and free hostages, including eight international monitors, minister Arsen Avakov said on Facebook. Rebels shot down two helicopters, killing two pilots, the Defense Ministry said.

“On a Friday, people are going to be more inclined to be less long going into a weekend with potential military action happening in the Ukraine,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “People don’t want to walk in Monday morning and be negatively surprised by a down market because of military action in Europe, so they’re selling off.”

Stocks rose earlier after data showed employers boosted payrolls in April by the most in two years and the jobless rate plunged to 6.3 percent as companies grew confident the U.S. economy is emerging from a first-quarter slowdown.

Jobs Report

The 288,000 gain in employment was the biggest since January 2012 and followed a revised 203,000 increase the prior month that was stronger than first estimated, Labor Department figures showed. The median forecast in a survey of economists called for a 218,000 advance. Unemployment dropped from 6.7 percent to the lowest level since September 2008 as fewer people entered the labor force.

“It’s a pretty strong report that suggests the Fed will continue to taper,” Anthony Valeri, a market strategist with LPL Financial Corp. in San Diego, said in a phone interview. The firm oversees $350 billion. “This is the first strong confirmation we’re unwinding some of the winter weakness.”

The Federal Reserve said this week that the economy is perking up after stalling last quarter and the job market is improving. The Federal Open Market Committee pared its monthly asset-buying to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely.

Economic Data

Gross domestic product rose at a 0.1 percent annualized rate from January through March, compared with a 2.6 percent gain in the prior quarter, the Commerce Department said earlier this week.

Data this week showed consumers and companies were shaking off winter doldrums. Household purchases, which account for about 70 percent of the economy, climbed 0.9 percent in March, the most since August 2009, the Commerce Department said yesterday. Incomes increased by the most in seven months. Also yesterday, data from the Institute for Supply Management showed factories added employees in April at the fastest pace in four months. Manufacturing expanded the most this year.

A separate report today showed factory orders increased 1.1 percent in March, below economists’ forecast for a 1.5 percent advance.

The S&P 500 has climbed 1.8 percent this year, while the Dow is down about 0.4 percent. The S&P 500 was up 1 percent this week as company earnings from Merck to Sprint Corp. topped analyst estimates. The Dow closed at a record on April 30.

Chevron Corp. and Estee Lauder Cos. were among S&P 500 companies that reported earnings today. About 77 percent of those that have posted results this season have beaten analysts’ estimates, data compiled by Bloomberg show. More than 51 percent of them have topped sales projections, according to the data.

Health Care

Six out of 10 major industries in the S&P 500 declined today, with utility shares falling 2 percent as a group. Commodity shares had the largest gain, increasing 0.5 percent as metals rallied.

Health-care stocks dropped 0.8 percent. Pfizer lost 1.3 percent to $30.75. AstraZeneca Plc rejected Pfizer’s sweetened takeover proposal, saying the 63.1 billion-pound ($106.5 billion) offer fails to appreciate the value of the promising medicines under development by the U.K.’s second-biggest drugmaker.

Merck slipped 2.4 percent to $58.22. Johnson & Johnson retreated 1.2 percent to $99.31. The three companies accounted for the biggest declines in the Dow.

LinkedIn Forecast

LinkedIn dropped 8.4 percent to $147.73, the lowest since Feb. 7. Second-quarter revenue will be $500 million to $505 million, the Mountain View, California-based company said in a statement yesterday. Analysts had estimated sales of $505.5 million, according to the average projection compiled by Bloomberg.

Casino companies rallied as April revenue from Macau rose 10.6 percent, beating the average analyst estimate for growth of 7 percent.

Wynn Resorts Ltd. added 7.3 percent to $221.68 after Wynn Macau Ltd.’s first-quarter profit also topped estimates. MGM Resorts International increased 4.3 percent to $26.49.

Estee Lauder climbed 4.8 percent to $75.62. The beauty-products maker raised its full-year forecast after fiscal third-quarter earnings beat analyst estimates.

U.S. stocks will fall 11 percent starting as soon as next week should some price patterns come true, according to Tom DeMark, the creator of indicators to show turning points in securities.

The S&P 500 will have peaked if it closes above 1,891 on one or two instances without also falling to 1,884 in intraday trading, DeMark said in a phone interview yesterday. He made similar statements in February, saying that if certain conditions were met, U.S. stocks had reached a point resembling the time before the 1929 market crash. The S&P 500 rallied 8 percent over the next two months.

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

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

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