Rout Worsens in U.S. Stocks as Nasdaq Lurches Toward Bear Market

Seven Banks Reduce S&P Year-End Targets
  • Banks pace losses, tech shares fall to lowest since August
  • Strategists are reducing year-end targets for S&P 500

U.S. stocks tumbled, with the Standard & Poor’s 500 Index falling to a 22-month low, as a second straight selloff pushed bank shares to the lowest since 2013 and left the Nasdaq Composite Index approaching a bear market.

Equities pared declines in a late-session rebound sparked by gains in energy shares, with the Nasdaq Composite briefly cutting its drop by more than half. Amazon.com Inc., Facebook Inc. and Google parent Alphabet Inc. slid, bringing declines since Thursday to 3.5 percent or more in companies that held the market aloft in 2015. Morgan Stanley and Goldman Sachs Group Inc. tumbled more than 4.6 percent. The Nasdaq Biotechnology Index fell 3.2 percent.

The Nasdaq Composite dropped 1.8 percent to 4,283.75 at 4 p.m. in New York, after falling as much as 3.5 percent. The gauge closed at its lowest since October 2014, and is down 18 percent from an all-time high in July. The S&P 500 fell 1.4 percent to 1,853.44, to its lowest close since April 2014. The Dow Jones Industrial Average slid 177.92 points, or 1.1 percent, to 16,027.05, trimming an afternoon drop of more than 400 points.

“We’re still seeing selling pressure from the tech valuation resetting last week, as well as the drop in oil,” said Matt Maley, an equity strategist at Miller Tabak & Co LLC in New York. “But it’s not just a problem with technology and some of the high-flyers that have rolled over in recent days, but also the recent stresses in the credit markets.”

Tech Rout

A rout in software and Internet companies continued Monday after the Nasdaq Internet Index on Friday suffered its biggest slump since 2011. Facebook fell 4.2 percent today for the steepest back-to-back decline since 2012. The S&P 500 sank last week for the first time in three, with a jobs-day tumble on Friday turning into a full-blown selloff in stocks with the highest valuations.

While the S&P 500’s valuation of 15.4 times the forecast earnings of its members is in line with the average of the past five years, the measure has plunged 13 percent since the start of the year and is at the lowest level since October 2014.

The gauge remains more expensive than developed markets in Europe, where the Stoxx 600 Index trades for 13.8 times estimated earnings. That’s down from a record valuation of 17.4 times notched in June.

“The market is unforgiving, it’s very nervous,” said Philippe Gijsels, the chief strategy officer of BNP Paribas Fortis in Brussels. “It’s just the same worries all over again: it’s China, oil prices, and then you see confirmation in the economic figures. If clients are getting nervous and want to get some money off the table, it’s very easy to sell the big names where there’s still a lot of profit left than take a loss on the other names.”

VIX Jumps

The Chicago Board Options Exchange Volatility Index jumped 11 percent Monday to 26, rising to a more than two-week high. The measure of market turbulence known as the VIX is up about 29 percent so far in February, the most since August, after rising in January for a third straight month. About 10.6 billion shares traded hands on U.S. exchanges, 35 percent above the three-month average.

Investors have been scrutinizing earnings and economic data, on guard for any signs of weakness spilling over from China. Gauges this week on the strength of U.S. growth include reports on business inventories, retail sales and consumer sentiment. Federal Reserve Chair Janet Yellen is scheduled to testify on monetary policy before Congress Wednesday and Thursday.

Amid financial market turbulence and tepid data, investors have cut the probability they see of further interest-rate increases, pricing almost no chance of the Fed raising borrowing costs in March and 6 percent odds in April, down from 17 percent on Friday.

With growing concern over China, oil and interest rates, market watchers have been losing their resolve in keeping bullish stock calls. Seven of the 21 strategists tracked by Bloomberg have cut their year-end projection for the S&P 500. The reductions have lowered the average annual estimate, the first time that’s happened this early in a year since the Iraq war in 2003. Now they project the benchmark index will end December at 2,168, or 15 percent more than the Friday close.

Banks Tumble

With the U.S. earnings reporting season more than half way through, about 77 percent of S&P 500 members that have had results so far topped profit estimates, while less than half have beaten sales projections. Analysts estimate earnings at companies in the gauge fell 4.5 percent in the fourth quarter, better than Jan. 15 predictions for a 7 percent slump.

Nine of the S&P 500’s 10 main industries declined, with financial, consumer discretionary, technology and raw-material companies losing at least 1.6 percent. Energy companies were little changed after erasing a 3 percent drop.

The KBW Bank Index slid 3.1 percent, to the lowest since June 2013. Comerica Inc., Citigroup Inc. and Bank of America Inc. lost more than 5.1 percent. Among the broader financial group, Morgan Stanley fell 6.9 percent, the most in more than three years. Goldman Sachs closed at its lowest in 33 months.

Under Armour

Under Armour Inc. was the hardest hit among consumer companies, falling 6.2 percent to extend its losing streak to six days, the longest since March 2014. The stock has a valuation of more than 55 times its forecast earnings, in line with the five-year average and down from a record 96 times in September.

Hanesbrands Inc. fell another 4.6 percent after a 15 percent drop Friday that followed a disappointing outlook. Nike Inc., the Dow’s best performer in 2015, is the worst so far in February, falling 11 percent.

The Nasdaq Internet Index also added to its Friday losses, with Amazon extending its two-day slide to 9 percent. EBay Inc. and Priceline Group Inc. lost more than 3.1 percent. Among other tech companies, Salesforce.com Inc. fell 7.6 percent to bring its back-to-back retreat to almost 20 percent, the most in 11 years. Hard-drive maker Western Digital Corp. decreased 8.6 percent to a three-year low.

Despite oil’s retreat below $30 a barrel, energy companies trimmed declines as Chevron Corp. gained 3.8 percent and Exxon Mobil Corp. increased 1.4 percent. Williams Cos. plunged 35 percent after Energy Transfer Equity LP, the pipeline conglomerate that’s agreed to buy Williams, said it’s replacing its chief financial officer amid investor concern that the deal is in trouble, analysts said.

Chesapeake Energy Corp. tumbled 33 percent, the most ever, amid concern the U.S. natural gas driller’s financial options are narrowing. The company dismissed speculation it’s facing a liquidity crisis. Oneok Inc. and Marathon Oil Corp. slid more than 7.5 percent.

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