U.S. Stocks Fall on Ukraine Concern as Energy Shares Drop

U.S. stocks resumed a selloff, wiping out yesterday’s rebound and sending benchmark indexes to the lowest levels since May, as energy shares tumbled and concern increased over escalating tensions in Ukraine.

Halliburton Co. and Pioneer Natural Resources Co. tumbled more than 3.4 percent to lead declines among energy companies. Target Corp. lost 4.4 percent after profit trailed its forecast as U.S. sales remained weak and its Canadian operations continued to struggle. Dollar General Corp. gained 3.4 percent as it was said to be weighing a bid for Family Dollar Stores Inc. Groupon Inc. dropped 17 percent in after-hours trading after reporting its results.

The Standard & Poor’s 500 Index slipped 1 percent to 1,920.21 at 4 p.m. in New York, the lowest level since May 29. The index climbed 0.7 percent yesterday after the biggest weekly loss in two years. The Dow Jones Industrial Average lost 139.81 points, or 0.8 percent, to 16,429.47. The Chicago Board Options Exchange Volatility Index jumped 12 percent. More than 6.5 billion shares changed hands on U.S. exchanges today, 13 percent above the three-month average.

“The market had been jittery,” Lou Shaduk, managing director of equity trading at Stifel Nicolaus & Co. in Baltimore, said in an interview. “You have Polish Minister Sikorski talking about Russian forces poised to pressure or invade Ukraine and that’s all the buyers needed today to go into hiding.”

President Vladimir Putin ordered the government to prepare a response to U.S. and European sanctions as Poland warned that a renewed buildup of Russian troops on Ukraine’s border raises the specter of a possible invasion.

Combat Readiness

Putin is showing no sign of backing down over Ukraine since the U.S. and the European Union tightened sanctions last week. The S&P 500 extended losses in the afternoon after Polish Foreign Minister Radoslaw Sikorski said Russia had restored its combat readiness on the Ukraine border. He did not give any indication that an incursion was imminent.

Selling accelerated after the S&P 500 slipped below last week’s closing level of 1,925.15 and yesterday’s intraday low of 1,921.20. The gauge has lost more than 3.4 percent since reaching a record high of 1,987.98 on July 24 and is about 70 points from erasing its gain for the year.

“I would attribute the dip in S&P to the rumor that Russia’s getting ready to invade Ukraine,” Walter “Bucky” Hellwig, a Birmingham, Alabama-based senior vice president at BB&T Wealth Management, said by phone. “That created additional technical difficulties with high-frequency trading.”

Economic Data

Stocks dropped early in the day as better-than-estimated services data fueled speculation interest rates may rise sooner than anticipated.

Service industries in the U.S. expanded in July at the fastest pace since December 2005, according to data from the Institute for Supply Management, indicating the economy was building more momentum at the start of the second half of 2014. Another release showed factory orders rose 1.1 percent in June, above economists’ estimates for a 0.6 percent gain.

Concern has grown that the improving economy may force the Fed to raise interest rates sooner than expected. Data last week showed U.S. gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the Fed’s view that a first-quarter contraction was transitory. Employers in the U.S. added more than 200,000 jobs for a sixth straight month in July, the longest such period since 1997.

The Fed last week cut its monthly bond buying to $25 billion in its sixth consecutive $10 billion reduction. The central bank reiterated that it’s likely to reduce bond buying in “further measured steps” and to keep interest rates low for a “considerable time” after ending purchases.

Fed Stimulus

Three rounds of central bank stimulus have helped lift the S&P 500 up 184 percent since the start of the bull market in March 2009. The benchmark equity gauge has gone without a 10 percent correction since 2011. It trades at 17.4 times the reported earnings of its companies, after reaching the highest level since 2010 in June.

Hedge-fund manager David Einhorn is struggling to find value amid a five-year stock market rally.

“We had a difficult time finding new investments this quarter,” he said today on a conference call discussing results at Greenlight Capital Re Ltd., the Cayman Islands-based reinsurer where he is chairman. “As the market continues to rise in the face of conflicting economic data, global unrest, and looming overdue Fed exit from quantitative easing we remain cautiously positioned.”

The S&P 500 tumbled 2.7 percent last week, the most since June 2012, as companies around the globe including Exxon Mobil Corp. posted disappointing results, Argentina defaulted and Banco Espirito Santo SA was ordered to raise capital.

Volatility Gauge

The VIX, which usually moves in the opposite direction to the S&P 500, jumped 12 percent to 16.87 today. It soared 34 percent last week, the most since January.

“There was a feeling among traders that yesterday’s rally didn’t have sustainability,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in an interview. “People came in today unimpressed with yesterday’s strength so we were sitting on wobbly legs even before this chatter around Ukraine came out.”

All 10 major industries in the S&P 500 declined today, with energy shares tumbling 2.1 percent. Utility shares slid 1.3 percent.

Energy companies slipped as oil futures fell for the sixth time in seven days on speculation that refineries will reduce operations, reducing demand. The group plunged 4.1 percent last week, the most since June 2012.

Refining Capacity

Refineries probably operated at 92.8 percent of capacity on Aug. 1, down from the previous week, according to a Bloomberg survey before a government report tomorrow.

Pioneer Natural Resources tumbled 5.6 percent and Halliburton lost 3.4 percent.

Target slipped 4.4 percent. Target has been struggling to boost U.S. traffic, rescue its botched expansion into Canada and regain shoppers’ trust after hackers stole millions of customers’ data last year. The retailer last week chose PepsiCo Inc. executive Brian Cornell to replace Gregg Steinhafel, who was ousted amid the turmoil this year.

Motorola Solutions Inc. decreased 4.2 percent. The telecommunications equipment provider reported second-quarter earnings and sales figures that were more than 24 percent short of analyst forecasts.

Earnings Season

Of the S&P 500 members that have posted financial results so far this season, 76 percent have beaten earnings estimates and 66 percent have exceeded sales projections, according to data compiled by Bloomberg.

Profit for the S&P 500’s constituents probably climbed 9.4 percent in the second quarter, while sales increased 4.2 percent, analysts’ estimates compiled by Bloomberg show.

Groupon tumbled 17 percent as of 4:44 p.m. in New York. After the market closed, the company forecast third-quarter earnings that fell short of analyst estimates.

Time Warner Inc. slumped 12 percent in after-hours trading as Rupert Murdoch’s 21st Century Fox Inc. withdrew its $75 billion takeover offer. Fox shares rose 8.3 percent.

Dollar General gained 3.4 percent during regular trading as people with knowledge of the matter said the company is weighing a bid for Family Dollar that would challenge Dollar Tree Inc.’s $8.5 billion takeover of the discount retailer. Family Dollar last week agreed to be acquired by Dollar Tree after investors Carl Icahn and Nelson Peltz had pushed for a sale.

Family Dollar jumped 2 percent while Dollar Tree fell 2.2 percent.

Airlines Drop

Delta Air Lines Inc. fell 2.8 percent and United Continental Holdings Inc. slid 3.4 percent during regular trading, after business newspaper Vedomosti reported Russia may limit or ban trans-Siberian flights by European Union airlines, citing people familiar with the matter.

Coach Inc. surged 4.3 percent. The luxury handbag maker posted fourth-quarter profit that topped analysts’ estimates as men’s goods and rising demand in China helped counter slumping sales of women’s bags and accessories in North America.

Avis Budget Group Inc. climbed 2.6 percent. The car-rental company raised its forecast for this year’s earnings and sales.

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