U.S. Stocks Slide as Twitter Leads Selloff in Technology
U.S. stocks fell for the third time in four days as Twitter (TWTR) Inc. led a selloff in Internet shares while American International Group Inc. dragged down financial companies.
Twitter plunged 18 percent as about 480 million shares from insiders became eligible for sale, more than quadrupling the current amount available for trading. The Dow Jones Internet Composite Index tumbled 3 percent, with Netflix Inc. and Amazon.com Inc. falling more than 4.1 percent. AIG declined 4.1 percent after saying rising claims costs contributed to a 27 percent drop in profit. Yahoo! Inc. gained 1.2 percent in after-hours trading as Alibaba Group Holding Ltd. filed for what could become the largest U.S. initial public offering ever.
The Standard & Poor’s 500 Index (SPX) retreated 0.9 percent to 1,867.72 at 4 p.m. in New York for the biggest loss in more than three weeks. The Nasdaq Composite Index slumped 1.4 percent. The Dow Jones Industrial Average (INDU) fell 129.53 points, or 0.8 percent, to 16,401.02.
“It seems the market is heavy,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said in a phone interview. “You have more of the slightly riskier stocks that have run into trouble here, in particular tech and biotech. Today, the financials are under pressure.”
The Bloomberg IPO Index, tracking stocks including Twitter, slumped 2.3 percent. The gauge for newly public companies has dropped 10 percent from its March peak as investors shifted out of the fastest-growing industries and sought safety in firms with stable earnings and dividends.
Technology, small-cap and biotechnology companies were among today’s biggest losers as selling of the bull market’s best performers resumed. Netflix, Facebook Inc. and E*Trade Financial Corp., whose gains exceeded 105 percent in 2013, dropped at least 3.9 percent today.
The Dow Jones Internet Index extended its decline from a March peak to 18 percent. The Russell 2000 (RTY) Index of smaller companies fell 1.6 percent, closing below its 200-day moving average for the first time since 2012. The Nasdaq Biotechnology Index slipped 1.7 percent, bringing its loss from a February high to 16 percent.
Twitter tumbled 18 percent to $31.85, the lowest level since debuting in November, as more shares became available from insiders who got their first chance to sell since the company’s initial public offering. The decline came even as early investors including Chris Sacca and Rizvi Traverse Management LLC pledged not to sell.
Other Internet stocks were punished. Yelp Inc. slid 13 percent, the most since November 2012, while Pandora Media Inc. lost 8.9 percent after plunging 17 percent on April 25. LinkedIn Corp. decreased 5.7 percent while Angie’s List Inc. fell more than 4 percent.
Along with Twitter, those companies make up some of the biggest holdings in the Global X Social Media ETF (SOCL), an exchange-traded fund listed on the Nasdaq Stock Market. That security declined 3.8 percent today, the sixth time in two weeks it has fallen more than 1 percent. It’s down 21 percent in 2014 after rising 64 percent last year.
“I’m hearing hedge funds continue to de-risk, mostly in higher momentum names, which would kind of fit into the mold of the Twitters, the Facebooks,” Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said by phone. The firm oversees $2.2 billion. “It’s just a rotation right now to more value names and the higher beta names seem to be beaten up more.”
Yahoo gained 1.2 percent to $36.93 as of 5:32 p.m. in New York. Alibaba’s market value is estimated at $168 billion, bigger than 95 percent of the S&P 500 -- and the most valuable Internet company after Google Inc., according to data compiled by Bloomberg. The company is looking to sell about a 12 percent stake, people familiar with the matter have said, which would make the offering around $20 billion based on the estimated value.
The IPO will be a boon for Yahoo, which plans to sell part of its 22.6 percent stake in Alibaba.
David Einhorn, the hedge fund manager who warned of a bubble in technology stocks two weeks ago, refined his stance by saying he’s bullish on the industry and that companies including Apple Inc. look underpriced.
“I’d like to clarify Greenlight’s remarks about a new technology bubble,” Einhorn said today in a conference call held by Greenlight Capital Re Ltd., the reinsurer where he is chairman and oversees investments. “In general, we are bullish on technology and technology stocks.”
U.S. stocks rose yesterday as an expansion in American service industries offset concern over growth in China and political tensions in Ukraine. The Dow last week climbed to an all-time high as earnings topped forecasts and the Federal Reserve said it would further trim bond purchases as the economy gains momentum. The S&P 500 briefly climbed above its highest closing price on May 2, as data showed U.S. payrolls rose the most since 2012.
The S&P 500 is up 1.1 percent for the year, while the Dow is down 1.1 percent. The Nasdaq Composite has lost 2.3 percent.
Some 26 S&P 500-listed companies report earnings today. Of the 406 index members to have released results this season, 75 percent have beaten estimates for profit, while 52 percent have exceeded projections for revenue.
Profit for members of the equity benchmark probably climbed 4.6 percent in the first quarter from the year-earlier period, while sales rose 2.8 percent, according to analyst estimates compiled by Bloomberg.
“It’s not a robust season,” Peter Tuz, who helps manage more than $450 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said by phone. “The market is going to be range bound without a clear trend until economic statistics point one way or another, and companies’ outlooks point one way or another.”
The U.S. trade deficit narrowed in March as exports grew by the most in nine months, pointing to a revival of global demand that will help the world’s largest economy strengthen. The gap shrank by 3.6 percent to $40.4 billion from the prior month’s $41.9 billion, Commerce Department figures showed today.
The Organization for Economic Cooperation and Development cut its global growth forecast as expansions in China and other emerging markets slow. The world economy will expand 3.4 percent this year instead of the 3.6 percent predicted in November, the Paris-based organization said in a report today.
Investors continued to watch the situation in Ukraine. The country’s president named a new commander of the ground forces, as the death toll rose in the military’s push to regain control of its easternmost cities from pro-Russian separatists.
French President Francois Hollande said he warned Russian President Vladimir Putin that Europe would continue to pressure him to let Ukraine hold a May 25 presidential election and if it is thwarted, “chaos and a risk of war” would follow.
About 5.9 billion shares changed hands on U.S. exchanges today, 11 percent below the three-month average. The Chicago Board Options Exchange Volatility Index, (VIX) a gauge for U.S. stock volatility known as the VIX, rose 3.8 percent to 13.80.
Financial shares lost 1.4 percent as a group, the most among 10 S&P 500 groups. AIG tumbled 4.1 percent to $50.54. First-quarter net income dropped to $1.61 billion, or $1.09 a share, from $2.21 billion, or $1.49, a year earlier, the insurer said after the close of trading yesterday. AIG paid out $1.01 in claims and expenses for every dollar of premiums it took in during the quarter. The business had costs of 97.3 cents per dollar a year earlier.
Discovery Communications Inc. fell 3.9 percent to $74.71. The owner of educational television channels reported first-quarter revenue of $1.41 billion, missing the average analyst estimate of $1.43 billion in a Bloomberg survey.
An S&P index of homebuilders dropped 2.1 percent as all 11 members fell. D.R. Horton (DHI) Inc. slipped 2.4 percent to $22.43 as Deutsche Bank AG removed the stock from its short-term buy list.
Energy shares rose 0.1 percent as a group for the only gain in the S&P 500. EOG Resources Inc. advanced 4.4 percent to $103.63. The shale driller reported profit excluding some items of $1.40 a share in the first quarter. Analysts, on average, estimated $1.19.
Anadarko Petroleum Corp. climbed 3.3 percent to $102.73. The oil and natural gas explorer raised its 2014 forecast for sales volume.
Avago Technologies Ltd. (AVGO) added 4.8 percent to $67.34. S&P said the semiconductor maker will replace LSI Corp. as a member of the S&P 500 Index, joining the U.S. benchmark gauge after the close of trading tomorrow.
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