Biotech Selloff Sinks U.S. Stocks; Dollar Gains, Treasuries Fall

Can Central Banks Handle Global Economic Pressure?
  • Nasdaq Biotech Index sinks 5.1%, tumbles into bear market
  • Fed Chair Yellen sees liftoff in 2015, barring any surprises

A selloff in biotechnology shares halted a rally in U.S. equities, while the dollar rose and Treasuries fell after Federal Reserve Chair Janet Yellen reassured investors the turmoil in emerging markets won’t kill off U.S. economic growth.

The Nasdaq Biotechnology Index tumbled more than 5 percent, sending the gauge of drugmakers into a bear market. Nike Inc. surged to a record, bolstering the Dow Jones Industrial Average. An index of global equities rose for the first time since the Fed policy meeting last week. The dollar strengthened toward its best week in two months, Treasuries led bonds lower and gold slumped.

Yellen managed to calm markets that had been shaken up after the Fed left rates unchanged last week amid concern that economic and financial turmoil could slow growth. A tweet from Democratic presidential hopeful Hillary Clinton suggesting there may be “price gouging” in the market for prescription pills sparked the selloff in drugmaker shares this week.

“We saw a rally come in and now the rally is getting questioned,” said John Stoltzfus, the New York-based chief market strategist at Oppenheimer & Co. “ It’s going to be all about earnings. The biggest thing here is: people are impatient. They want their answers now.”

Data in the U.S. today showed the world’s largest economy expanded more than previously forecast in the second quarter, boosted by gains in consumer spending and construction. A report on consumer sentiment indicated some households are starting to look beyond the recent turmoil in financial markets.

Stocks

The Standard & Poor’s 500 Index ended little changed at 4 p.m. in New York, with the gauge erasing a gain of 1.1 percent amid the biotech rout. The index has fallen in all but one of the days since the Fed’s rate decision and capped a second weekly decline with a 1.4 percent loss.

The Nasdaq biotech index tumbled 13 percent this week, the most since August 2011. That brought its decline since a July high past 20 percent, meeting the common definition of a bear market. The high-flying industry, which surged more than 450 percent during the six-year bull market, is now finding less favor among investors than its more staid older cousins that include Aetna Inc. and HCA Holdings Inc.

“There’s the Hillary Clinton factor here,” Stoltzfus said. “The was always fear of what she wanted to do to health care in terms of pricing. What you’ve got is it’s been the leading sector up until a little bit ago and for the year. As a result of that, there’s profit taking when anyone feels a bit of uncertainty.”

Nike Inc. surged 8.8 percent to an all-time high after the the world’s largest maker of athletic gear beat first-quarter earnings estimates, helped by higher prices and a lower tax rate.

The MSCI All-Country World Index climbed 0.6 percent. European shares rebounded from an eight-month low, with automakers and miners leading the Stoxx Europe 600 Index 2.8 percent higher. The gauge fell 1.6 percent this week in its first back-to-back weekly declines since August.

Bonds

The two-year Treasury note yield increased one basis point to 0.69 percent. It had been at 0.81 percent on Sept. 16, the day before last week’s Fed policy decision. Ten-year Treasury note yields climbed four basis points to 2.17 percent. 

Europe’s government bonds followed Treasuries lower, with yields on 10-year German bunds, the region’s benchmark security, rising five basis points to 0.65 percent and Britain’s 10-year gilt yield jumping seven basis points to 1.83 percent.

Traders aren’t convinced a rate increase is a sure thing. There’s a 43 percent probability the Fed will raise rates by its December meeting. While that’s up from 39 percent on Sept. 22, it’s down from 60 percent odds at the end of August, according to futures data compiled by Bloomberg. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.

Currencies

The dollar strengthened against most of its 16 major counterparts. It added 0.3 percent to $1.11982 per euro, for a 1 percent gain on the week. The U.S. currency rallied 0.5 percent to 120.61 yen on Friday.

The Bloomberg Dollar Spot Index jumped 1.1 percent this week, the most since the five days through July 17.

Brazil’s real swung between gains and losses Friday, capping a tumultuous week of trading that sent volatility to the highest level in almost four years. The real set record lows before gaining the most in seven years on Thursday as the central bank vowed to act to stem its rout amid doubts the government can shore up the economy. 

Markets

The MSCI Emerging Markets Index rose 0.4 percent, paring this week’s drop to 5 percent, its first decline in three weeks. Benchmark gauges in Russia, Poland and Hungary advanced at least 0.9 percent. 

Hong Kong’s Hang Seng China Enterprises Index added 0.5 percent, its first gain in five days and leaving it down 5.1 percent for the week.

Commodities

Gold futures slipped as Yellen’s speech dealt a blow to gold bulls who had pushed prices to the highest in a month. Bullion for deliver in three months dropped 0.7 percent to settle at $1,145.60 an ounce. The metal closed Thursday at the highest level since Aug. 24 after the biggest surge since Jan. 30.

Oil futures rose, capping a second weekly advance on signs that retreating supply will begin to pare a global glut even as Chinese demand slows. West Texas Intermediate crude climbed 1.8 percent to settle at $45.70 a barrel in New York.

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