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U.S. Stocks Fall From Record as Small-Cap Selloff Resumes

U.S. stocks fell, sending benchmark indexes down from all-time highs, as investors resumed selling in small-cap and Internet shares.

Groupon Inc. sank 4.4 percent to lead the Dow Jones Internet Index lower by 1.2 percent. Fossil Group Inc. fell 10 percent after the maker of watches and accessories forecast earnings that trailed analysts’ estimates. Deere & Co. (DE) slid 2 percent after cutting its full-year revenue projection. International Business Machines Corp. lost 1.8 percent to pace declines among large companies.

The Standard & Poor’s 500 Index dropped 0.5 percent to 1,888.53 at 4 p.m. in New York, ending a three-day rally. The Dow Jones Industrial Average lost 101.47 points, or 0.6 percent, to 16,613.97, halting five days of gains. The Russell 2000 Index of small stocks sank 1.6 percent after yesterday sliding 1.1 percent. About 5.4 billion shares changed hands on U.S. exchanges, 19 percent below the three-month average.

“The market is taking a bit of a breather,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said in a phone interview. “Earnings have been OK, but now we’re in a slow period. We’re going to have to see earnings pick up to get us to the next level on stocks.”

The S&P 500 rebounded 4.5 percent from its low on April 11 through yesterday, recovering declines after a selloff in technology and small-cap stocks overshadowed optimism about the strength of the economy. The equities benchmark briefly surpassed 1,900 for the first time yesterday, ending the day little changed at an all-time high of 1,897.45. The Dow also finished yesterday at a record.

Small-Cap Selloff

The Russell 2000 has fallen 2.7 percent in the past two days, extending its drop from a March high to 8.7 percent. The gauge retreated 1.9 percent last week to close below its average price for the past 200 days for the first time since 2012. The Dow Jones Internet Index has plunged 17 percent from a 13-year high in March.

“There’s potential for people to take profits as we reach this record-high area,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. “When you get these run-ups, people start to look at economic data, and we haven’t exactly had a great run over the last month. People were expecting a pickup following a tough winter.”

Data today showed wholesale prices in the U.S. rose in April by the most in more than a year, reflecting broad-based gains that signal the threat of deflation is ebbing as the economy improves.

Stimulus Watch

A report yesterday showed retail sales climbed 0.1 percent last month, as consumers were less inclined to ramp up spending again after March saw a release of pent-up demand caused by harsh winter weather.

Federal Reserve Chair Janet Yellen will speak tomorrow after saying last week the world’s biggest economy still requires a strong dose of stimulus. She told U.S. lawmakers that while data show “solid growth” in the second quarter, “many Americans who want a job are still unemployed” and inflation remains low.

Three rounds of monetary stimulus have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.

Macy’s Inc., Wal-Mart Stores Inc. and Kohl’s Corp. are among 12 companies in the S&P 500 scheduled to disclose results this week, giving investors insight into how retailers performed during the winter months.

Earnings, Ukraine

Among the 457 companies in the S&P 500 that have posted results this earnings season, 76 percent beat analysts’ estimates for profits and 53 percent exceeded sales projections, according to data compiled by Bloomberg.

Investors have also been watching developments in Ukraine, where rebels yesterday killed seven government soldiers and wounded eight others during an ambush in a breakaway eastern region.

The country “is as close to civil war as you can get,” Russian Foreign Minister Sergei Lavrov said in an interview today with Bloomberg Television. Russia has “no intention” of send its troops anywhere, he said. The country is locked in the worst standoff since the end of the Cold War against the U.S. and Europe over Ukraine in the run-up to presidential elections later this month.

The Chicago Board Options Exchange Volatility Index (VIX), a gauge for U.S. stock volatility known as the VIX, added 0.3 percent to 12.17. The gauge has fallen 43 percent since reaching a two-year high on Feb. 3 and closed yesterday at the lowest since August.

IBM Drop

Five of the 10 main S&P 500 groups retreated today, with consumer-discretionary stocks losing 1.1 percent to pace declines. Phone shares added 0.5 percent.

IBM slid 1.8 percent to $188.72 for the steepest slide in the Dow. Chief Executive Officer Ginni Rometty spoke to Wall Street analysts today, saying she remains confident in the company’s 2015 profit forecast despite tumbling sales in hardware and emerging markets like China.

Fossil lost 10 percent to $100 for the biggest drop in the S&P 500. Second-quarter earnings will be 90 cents to 97 cents a share, the company said after the close of trading yesterday. Analysts had projected $1.16. The company predicted sales growth of 8 percent to 9.5 percent, also missing the 10 percent average estimate.

Deere fell 2 percent to $91.70. The largest agricultural-equipment maker said equipment sales will drop by about 4 percent for 2014, compared with a previous projection for a decline of about 3 percent. Equipment sales in the quarter through April slid to $9.25 billion from $10.3 billion, missing the average analyst estimate.

Sears Holdings Corp. fell 5.9 percent to $40.70 after saying it is considering a divestment of its 51 percent interest or the sale of Sears Canada as a whole.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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