Monday, April 7, 2014

More bad news from U.S. stocks

By Nick Gentle and Stephen Kirkland,

U.S. stocks fell, as the Nasdaq 100 Index extended a two-month low and consumer shares sank a third day. European equities fell from a six-year high, while Spanish and Italian bonds retreated.

The Standard & Poor’s 500 Index lost 0.5 percent at 10:31 a.m. in New York. The Nasdaq 100 fell 0.4 percent after a 2.7 percent slide on April 4. The Stoxx Europe 600 Index fell 1.2 percent, the most in a month, and the MSCI All-Country World Index slipped 0.6 percent. The yield on Spain’s 10-year bond rose three basis points to 3.18 percent. Treasuries advanced to the highest level in more than a week.

The Nasdaq Composite Index of technology stocks slid the most in two months on April 4 amid concern valuations on the world’s best-performing industry have advanced too far. Federal Reserve Bank of St. Louis President James Bullard will speak today after a lower-than-estimated U.S. payrolls number last week. Bonds fell after European Central Bank Governing Council member Ewald Nowotny said there’s no immediate need for further action on new stimulus.

“The question today is will investors see this as opportunity to buy the dip, or do they stay on the sidelines and wait to see earnings strength in the first quarter?” Kate Warne, a St. Louis-based investment strategist at Edward Jones & Co., which manages $787 billion, said by phone. “The fundamentals remain pretty good, but sentiment can change quickly, as we saw on Friday.”

Consumer Rout

Consumer stocks fell 1.1 percent today, the most among the 10 main S&P 500 groups, after dropping 1.7 percent on April 4. The industry has lost 5.1 percent since a record close on March 6.

Alcoa Inc., the largest U.S. aluminum producer, unofficially kicks off the U.S. quarterly earnings season when it releases financial results after the close of trading tomorrow. JPMorgan Chase & Co. and Wells Fargo & Co. are also among the S&P 500-listed companies reporting this week.

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

Technology shares have been hit as traders dump the biggest winners of the bull market amid concern valuations have advanced too far.

The Nasdaq Composite Index, which slid the most in two months on April 4, trades at 31.8 times reported earnings of the companies in the index. That’s almost twice the ratio for the S&P 500, which trades at 17 times earnings.

Technology Options

The selling in the Nasdaq 100 Index has sent anxiety among options traders to the highest levels since the flash crash four years ago. More than 1 million bearish options on an exchange- traded fund tracking the index of technology stocks changed hands that day for the most trading in puts since May 7, 2010, the day after $862 billion was erased from the value of U.S. equities in a matter of minutes.

With Twitter Inc. down 32 percent this year, biotechnology shares closing in on a bear market and high-frequency traders getting pilloried, U.S. investors are returning to industrials. An ETF tracking S&P 500 airlines, trucking companies and machinery makers rallied 1.6 percent last week and saw the value of its assets increase by the most ever, data compiled by Bloomberg show.

Mark Mobius, who oversees about $50 billion at Templeton Emerging Markets Group, said he’s buying technology stocks after a global rout left companies such as Tencent Holdings Ltd. trading at “reasonable” valuations.

Good Correction

“If you look at Tencent for example, it’s come down about 20 percent and that’s a pretty good correction,” Mobius, whose Templeton Asian Growth Fund outperformed 88 percent of peers this year, said in an interview in Bloomberg’s Hong Kong office, declining to name specific stocks he’s buying.

Tencent fell 4.5 percent at the close in Hong Kong today, extending its drop from a March 6 record to 21 percent.

European technology shares also slumped. A gauge of technology stocks in the Stoxx 500 lost 1.7 percent, the biggest decline among 19 industry groups, with ARM Holdings Plc falling 2.3 percent and Nokia Oyj sliding 3.1 percent.

Mallinckrodt Plc agreed to buy Questcor Pharmaceuticals Inc. for $5.6 billion in cash and stock to add treatments for autoimmune and inflammatory diseases. Mallinckrodt will pay will $86.08 a share for Anaheim, California-based Questcor, the companies said today. Questcor jumped 31 percent to $88.74 in pre-market trading and Mallinckrodt climbed 7.6 percent.

European Stocks

Altice SA jumped 12 percent, while Bouygues SA slumped 5.4 percent, after Vivendi SA agreed to sell its phone unit SFR to Altice in a deal valued at more than 17 billion euros ($23.3 billion), rebuffing Bouygues’s sweetened offer.

“European markets are following the negative close in the U.S.,” said Benno Galliker, a trader at Luzerner Kantonalbank AG in Lucerne, Switzerland. “The favorites of the past few months, such as technology and biotechnology stocks, seem to be losing some of the glamor.”

The ruble weakened 1.1 percent against the dollar, the biggest decline among 24 emerging markets, and Russia’s Micex Index dropped 3.1 percent in Moscow, the most in a month on a closing basis. The yield on Ukraine’s 2023 bond rose 56 basis points to 9.24 percent and the nation’s benchmark stock gauge dropped 3.5 percent.

Protesters with Russian flags stormed administration offices in the cities of Donetsk and Luhansk, calling for a boycott of the May 25 presidential election. A group temporarily seized offices in Kharkiv before the building was freed. Russian forces shot a Ukrainian military officer to death in Crimea, according to the Kiev-based Defense Ministry.

The yield on 10-year Italian securities increased two basis points to 3.19 percent, after falling to a record-low 3.14 percent. The yield on equivalent-maturity German bunds was at 1.54 percent.

Yields on Treasury 10-year notes fell two basis points to 2.70 percent after the rate dropped eight basis points on April 4.

The euro strengthened 0.3 percent to $1.3744. The yen was little changed at 103.22 per dollar. The Japanese currency was at 141.70 yen per euro.

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