Nasdaq Falls Most Since 2011 as Tech Selloff Resumes

U.S. stocks fell, with the Nasdaq Composite Index sinking the most since 2011, as technology shares resumed a selloff on concern valuations are too high as earnings season begins. Treasury rates sank to a three-week low on speculation interest-rate increases won’t be accelerated.

The Nasdaq Composite Index sank 3.1 percent at 4 p.m. in New York to a two-month low that erased its gain this year. The Standard & Poor’s 500 Index lost 2.1 percent to the lowest since Feb. 19. The 10-year Treasury note fell five basis points to 2.64 percent. The Bloomberg Dollar Spot Index declined to a five-month low and the yen strengthened on a surprise drop in China’s trade figures. Gold jumped 1 percent to $1,318.30.

Investors returned today to selling the biggest winners in the five-year U.S. bull market, with Internet and biotechnology shares plunging. Bed Bath & Beyond Inc. tumbled the most in three months after warning first-quarter profit will fall short of analysts’ estimates. China’s exports slid 6.6 percent and imports declined in March, adding to concern that expansion in the world’s second-largest economy will deteriorate further.

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“The market is very skittish,” David Pavan, a portfolio manager at ClariVest Asset Management LLC in San Diego, California, said in a phone interview. His firm oversees about $3.5 billion. “You see very sharp love and hate on a day-to-day basis. Today is a very strong preference for cheap stocks. Higher growth stocks get really hit hard.”

Biotechnology Stocks

The Dow Jones Internet Composite Index sank 4.2 percent and the Nasdaq Biotechnology Index plunged 5.6 percent, the most since 2011. Alexion Pharmaceuticals Inc. dropped 7.5 percent, the most in the S&P 500. The drugmaker, which trades at 101 times reported earnings, has lost 22 percent since closing at a record on Feb. 27.

The Nasdaq Composite trades at 35 times reported earnings of the companies in the index. That’s twice the ratio for the S&P 500, which trades at 17 times earnings. Bed Bath & Beyond, a Nasdaq component, lost 6.2 percent.

Alcoa Inc. this week unofficially began the earnings season as it posted profit that beat analysts’ estimates. Earnings for members of the S&P 500 probably climbed 1 percent in the first quarter, analysts now forecast, after anticipating a 6.6 percent rise in January.

“There’s still a continual rotation out of the high-flying momentum stocks of 2013 into more value-driven opportunities,” Chad Morganlander, a Florham Park, New Jersey-based portfolio manager for Stifel Nicolaus & Co., which oversees more than $150 billion. “This will continue in the coming weeks as investors look for consistency in earnings. You have concerns about high valuations and flat revenue growth, which is a perfect cocktail for a sector rotation out of growth and into value.”

Gain Erased

The S&P 500 jumped 1.1 percent yesterday, the most since March 4, on the Fed minutes, pushing its two-day advance to 1.5 percent. Today’s plunge erased the index’s gain for the year. The gauge has fallen 3 percent from a record on April 2.

“These things feed on themselves,” said Tom Caldwell, chief executive officer of Caldwell Securities Ltd. The Toronto-based firm manages about C$1 billion ($915.3 million). “We’ve had a month of the market getting tired and letting off steam. It’s not a dramatic trend reversal. The market is waiting for some good news, waiting for a new revelation if you will.”

Benchmark 10-year securities rose as investors re-priced projections for when the central bank will increase borrowing costs. Treasuries remained higher after the U.S. sale of $13 billion in 30-year bonds was met with the highest demand since December.

Rate Forecast

The Federal Reserve played down forecasts for rates to increase faster than projected earlier, with some members saying comments had been “misconstrued,” according to minutes of its March 18-19 meeting released yesterday.

The MSCI Emerging Markets Index gained for a fifth day, rising 0.6 percent to the highest level since November as China’s plans to connect the stock exchanges of Hong Kong and Shanghai bolstered speculation the country will lure more investors.

Stocks rallied on both venues after China said it would allow a combined 23.5 billion yuan ($3.8 billion) of cross-border trading. The Shanghai Composite Index advanced 1.4 percent and the Hang Seng China Enterprises Index gained 0.4 percent. The gauge of mainland companies listed in Hong Kong earlier fell as much as 1.5 percent following the trade data.

Significant Impact

“The quota will have a significant impact on the Hong Kong market because it accounts for about a quarter or fifth of the daily turnover,” said Sam Chi Yung, a strategist at Delta Asia Securities Ltd. “The quota amount is a starting point.”

The China export data weighed on European equities, as the Stoxx Europe 600 fell 0.5 percent, reversing an earlier gain of 0.6 percent. Fifteen of the 19 industry groups retreated.

European bonds rallied. The yield on 10-year U.K. gilts fell seven basis points to 2.62 percent, while German 10-year bunds lost five basis points to 1.52 percent.

The yield on Greek 10-year bonds rose five basis points to 5.94 percent after dropping to 5.80 percent yesterday, the lowest since February 2010.

“Bond markets have woken up on a positive note on the back of a dovish set of Fed minutes,” said Richard McGuire, a fixed-income strategist at Rabobank International in London. “All euro zone markets are firmer. This is a classic case of an improving liquidity outlook raising all boats.”

Greek Bonds

Greece ended a four-year exile from international markets with a bond sale of $4.2 billion, more than the government estimated. The coupon on the bonds, which will be settled next week, is 4.75 percent, the Athens-based Finance Ministry said in an e-mailed statement announcing the sale.

The yen gained to the strongest in three weeks against the dollar as the China export data revived demand for safer assets. The Japanese currency advanced 0.5 percent to 101.48 per dollar. It climbed 0.3 percent versus the euro. The shared currency rose to $1.3888.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, slipped 0.1 percent to 1,005.13 for a fifth day of losses. It earlier slid to 1,004.08, the lowest level since Oct. 30.

Metals Rally

Brent crude fell for the first time in three days, eroding its premium to West Texas Intermediate to the least since September, amid signs Libyan exports may recover as stronger gasoline demand buoys U.S. prices. WTI for May delivery fell 19 cents to $103.41 a barrel on the New York Mercantile Exchange.

Copper futures for delivery in May rose less than 0.1 percent to $3.045 a pound. China’s imports of unwrought copper and copper products rose 11 percent to 420,000 tons in March from a month earlier.

Nickel extended its longest rally since October 2010 in London on mounting concern that global demand will exceed supply after Indonesia, the world’ biggest supplier of mined metal, barred unprocessed-ore exports. The metal rose 2.3 percent to settle at $17,080 a metric ton in London.

To contact the reporters on this story: Callie Bost in New York at cbost2@bloomberg.net; Jeremy Herron in New York at jherron8@bloomberg.net

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

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