It was a short stay at the top for U.S. equities.
Concern that the Federal Reserve may soon raise borrowing costs even as economic growth sputters sent stocks dropping from records in the week, with losses concentrated in areas with some of the highest valuations.
Biotechnology shares bore the brunt of the selling, sinking the most in more than a year, while declines of more than 21 percent in LinkedIn Corp. and Twitter Inc. led social-media shares lower. Small-cap stocks completed the worst week since October, while the Nasdaq Composite Index had its biggest weekly slide in a month after taking out its dot-com-era record in the previous period.
“When you’re at all-time highs, people often take profits or put money into sectors that don’t look frothy,” Joe “JJ” Kinahan, chief strategist at TD Ameritrade Holding Corp., said by phone. “People have gone into protective mode.”
The Standard & Poor’s 500 Index fell 0.4 percent to 2,108.29 for the week, paring the drop on the final session after falling as much as 1.5 percent from a record reached April 24. The Dow Jones Industrial Average lost 56.08 points, 0.3 percent, to 18,024.06.
Risk appetite retreated at a time when some of the year’s most popular market bets backfired, with the dollar and European bonds sliding in April and energy prices rebounding. While data showing the economy expanded at a 0.2 percent annualized rate in the first quarter added to a run of disappointing reports, the Fed called the weakness “transitory,” opening the door for a possible rate increase this year.
Stocks declined even as quarterly earnings came in better than expected. Among 160 companies that reported over the week, profits beat analysts’ estimates by a margin of 10 percent, data compiled by Bloomberg show.
“Earnings have been coming in in reasonable shape, in some cases in very good shape,” Barry James, who helps oversee $6.5 billion as president of James Investment Research in Xenia, Ohio, said in a phone interview. “What we’ve had from a real top-down view is a market that’s not cheap, it’s not what you would call devastatingly expensive. We have a period of vulnerability to shocks.”
Biotech and social-media companies, viewed by some investors as being in bubble territory, led the retreat in the week. The Nasdaq Biotechnology Index, which had surged more than 160 percent since 2012, plunged 5.5 percent for the worst week since March 2014. Biogen Inc. slumped 3.9 percent and Amgen Inc. lost 4.5 percent.
The Dow Jones Internet Composite Index slid the most since January. LinkedIn tumbled 21 percent after cutting its profit forecast. Micro-blogging site Twitter plunged 26 percent after trimming its sales projection, while Yelp Inc., an operator of user-review websites, sank 21 percent amid slipping ad sales.
Some of the major technology companies that propelled equities to fresh records in the previous week also retreated. Apple Inc. dropped 1 percent amid concern that the rapid growth of the iPhone will wane. Amazon.com Inc. lost 5 percent, while Yahoo! Inc. fell 4.5 percent.
Small-caps lost favor among investors as the dollar’s decline eased concern over the currency blow to overseas sales by multinationals. The Russell 2000 Index of smaller companies tumbled 3.1 percent for the week, compared with a 0.3 percent loss in the index tracking the 100 largest companies in the S&P 500. In the six months through March, small caps climbed about six times faster as the Russell 2000 jumped 14 percent.
Among S&P 500 industries, health-care and consumer-discretionary stocks performed the worst, falling more than 1.6 percent. Commodity shares ranked the best with advances of at least 1.1 percent as oil and metal prices capped weekly advances.
The S&P 500 is up 2.4 percent this year, among the worst performances by developed markets tracked by Bloomberg. The index has set 104 records since March 2013, or one every seven days, data compiled by Bloomberg show. This year, the number of highs totaled six, with the latest coming after its longest stretch without one in two years.
The “market is wary of higher rates and takes its wrath out on the more speculative names like Twitter and LinkedIn,” Howard Ward, chief investment officer of growth equities for Rye, New York-based Gamco Investors Inc., which oversees $47 billion, said in an interview. “I believe rising global growth, with a lower dollar, will be the catalyst for the next leg up in stocks.”